How Long Can This Fragile Rally Last?

Markets soared yesterday following a united attempt by six central banks to
provide more dollars at a lower price to their banking systems.
AndChinaannounced that they were cutting reserve requirements for their banks,
which is interpreted as giving up the fight on inflation in favor of stimulating
their economy. Despite the obvious admission that other policies were failing
and something dramatic had to be done to thwart a worldwide economic failure,
stocks had their best session in two-and-a-half years. The Dow Jones Industrial
Average rose 4.24%, the S&P 500 gained 4.33%, and the Nasdaq jumped 4.17%.
Volume was high with almost 1.7 billion shares trading on the NYSE and 847
million on the Nasdaq. Advancers exceeded decliners by 6.75-to-1 on the Big
Board and 4.63-to-1 on the Nasdaq. Click to Enlarge Despite yesterday's big
percentage moves, the major indices are still within right triangle bearish
trading patterns. The S&P 500's reversal on Monday establishes the lower
boundary of a huge right triangle with resistance at the 200-day moving average
at 1,265 and support at 1,158. Following yesterday's huge rebound, the initial
support is now at 1,220. Click to Enlarge Click to Enlarge Dow Theory purists
will note that the bear market pattern of lower highs and lows on the Dow
industrials and transports have not changed. The industrials have, however,
penetrated their 200-day moving average a positive. And despite the buy signal
from the stochastic, the bear is still in the field. Click to Enlarge For the
first time in many years, the 17-month moving average of the S&P 500 issued a
buy signal within just two months of a sell signal. This occurred because of the
extreme volatility of the world's stock markets and the unusually unstable
economic situation inEurope. Conclusion: A highly dangerous economic situation
was temporarily avoided when the major world powers agreed on a package of
unusual joint decisions with their banking systems. This occurred as the
financial world was becoming aware of a potential global collapse, so the
headlines-sensitive stock market exploded with relief yesterday when the central
banks took action. But the extreme and unusually cooperative actions reveal the
fragile condition of the markets, so it is likely that yesterday's rally could
be short-lived. For now, it is best to stand aside ( or play this volatile
market with options ). The bear is still roaming and further headlines could
lead to even more volatile days ahead. Todays Trading Landscape To see a list of
the companies reporting earnings today, click here . For a list of this weeks
economic reports due out, click here .