Is This Just Another Dead-Cat Bounce?

"The euro zone has agreed to take a big leap forward in economic integration,
but failed to deliver a convincing answer to investors worried about its ability
to tackle threatening debt crises in Italy and Spain." Reuters, Berlin, Dec 9.
The stock market rallied on Friday following an agreement from the euro zone to
provide the International Monetary Fund (IMF) with up to E200 billion in loans.
Britain, however, made it clear that it will not support the process, so whether
the pact will hold together is questionable. Britain is the third largest
economy in the EU, and without their cooperation concerns remain that the zone
could fracture into the old country-by-country currency. Italy's 10-year bond
rose to over 6.5% from 6% earlier in the week, which puts it close to the 7%
level that economists have said is unsustainable. The euro made small progress
on Friday climbing to $1.3363 from $1.3347 on Thursday. A Wall Street Journal
editorial on Saturday began by saying, "The euro-zone crisis started in the
bond markets and despite the deal at the European summit, it still lives
there." For the week, the Dow Jones Industrial Average rose 1.4%, the S&P 500
gained 0.9%, and the Nasdaq rose 0.8%. On Friday, the Dow was up 1.55%, the S&P
500 gained 1.69%, and the Nasdaq was up 1.94%. Volume on the NYSE totaled 819
million shares, while the Nasdaq traded 440 million. Breadth was positive on
both exchanges with advancers ahead of decliners by 6-to-1 on the Big Board and
4.5-to-1 on the Nasdaq. Click to Enlarge Although Friday's rally erased most
of Thursday's loss, volume lagged on both exchanges and was well below the
quarter's daily average. A lower-volume rebound after a plunge tells us that
there are few committed long-term buyers in the crowd, and so the chances of
another dead-cat bounce are high. In plain language the bounce was composed
mostly of traders and low institutional participation not the stuff of major
bullish breakouts.