NEW YORK (CNN/Money) -
The stomach-churning slide that brought the Dow from 9,900 at the beginning of June all the way down to 7,700 appears, for the moment, to have abated.
The Dow's back to 8,818 -- 15 percent above its July 23 close. The Nasdaq is 9 percent up from its low point and the S&P 500 has tacked on 17 percent. There's cautious hope that stocks' worst troubles are behind them -- but after getting caught so many times in the past, before anyone believes in the rally they're going to have to see signs that it can persist.
Some of what's happened so far has been cheering. Investor sentiment was atrocious at the low point, and pessimism is often a sign of a market bottom. Stocks slipped early this month, but didn't come close to their late-July nadir -- a sign of new confidence among buyers. There's been more volume on the days when stocks have gone higher than when they've declined, which suggests increasing demand for stocks.
Perhaps most heartening, according to Phil Ruffat of Mizuho Securities USA's futures division, is that stocks have begun to shrug off bad news. Take Thursday when, despite a surprisingly weak economic report from the Philadelphia Fed and more bad news on the corporate front, the Dow nosed higher to its highest close in more than a month.
"Everybody is sick of bad news and now they're just immune to it," said Ruffat. "Martha Stewart -- who cares?" At the same time, Ruffat said, big hedge funds that have been making money betting against stocks all year became very reluctant to short the market this month.
"I think the rally has legs," said Richard Dickson, technical analyst at Hilliard Lyons. "I'm not saying 'This is it, guys, we have a new bull market,' but it's been acting pretty well." What Dickson would like to see is for volume to continue to be heavy on the days stock move higher and, if possible, get even more heavy. He'd like to see a lot of stocks participating in the rally, not just the name-brand ones that can power the indexes higher.
Those things would indicate the kind of investor interest the market will need to propel it higher, particularly as it runs into areas where a lot of investors bought and got burned earlier -- levels analysts term "resistance." The idea is that there are investors making deals with their maker along the lines of, "Oh God, if you just make General Motors go back up to $50 I will sell it, put the money into a savings account and walk in your ways forever."
Not so fast
John Bollinger, of Bollinger Capital, frets the market has yet to prove it has the kind of oomph it's going to need to get through those "Oh God" levels.
"What worries me is that we haven't really seen a sign of strength, a point where the bears are overpowered by the bulls and throw in the towel," said Bollinger. "That would indicate a dramatic shift -- essentially the breaking of the camel's back."
What would such a menagerie look like? Bollinger would like to see a big rally on huge volume where the number of advancing stocks dwarfs declining issues. The trading volume on the stocks that fell would incredibly low compared to the volume on stocks that rose, and there'd be a bunch of stocks hitting new 52-week highs.
So far the market hasn't been able to string all those things together. On Wednesday, for example, when the Dow ran up 261 points, volume was unimpressive and although advancers beat decliners nearly three to one on the New York Stock Exhange, only 45 stocks hit new 52-week highs, while 125 hit new lows.
In contrast, as stocks pushed higher after the 1998 trough there were a number of days like that hit Bollinger's criteria. The same was true when the bull market began 20 years ago in August 1982 -- Bollinger can remember the trader he worked under nearly dancing with excitement the first time over 100 million shares traded on the NYSE. It's possible, he said, for a market to turn without the things he wants to see happening, but in his experience that would be unique -- and he's not willing make bets on uniqueness.
"Maybe I'm wrong and I've got way too much cash and I'm going to be the laughing stock of town," he said. "But I don't know another way to be right now."
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