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The day ends with a massive rally as the Dow Jones Industrial Average (DJIA) surges 379 points. The S&P 500 (SPX) jumped 6% while the Nasdaq Composite (COMP) and Russell 2000 (RUT) each advanced 7%.

Continuing the pattern we saw earlier, the sector graph shows most stock-related groups rallied. The only decliners were bonds, oil, gold and the Amex Gold Bugs Index (HUI). Financials led the charge as the Regional Bank HOLDRS (RKH) jumped 16%. The SPDR Homebuilders (XHB) gained over 10%.

Looking at the SPX, this marks the largest single-day advance since November 24. While that sounds impressive, you may want to consider the daily chart below. I have put my cursor on the day of that rally. It is true that we did see a rally off the lows. However, it is equally true that the bounce was relatively short-lived and the market went on to make new lows. In other words, rallies in a bear market may "feel" good but they must be viewed in context. By that, I mean it is important to understand they can be violent but short-lived. Bulls markets trend higher with sudden pullbacks. Bear markets grind lower with sudden rallies.

My intent here isn't to spread gloom. I simply want to remain objective. On the bright side the Dow Jones Industrial Average (DJIA) did break the downtrend shown below. This opens up the possibility of a run to 7500 or even 8000 before heavy resistance is hit. However, if we do rally that much, we will likely be overbought. In other words, when the rally "really" starts to feel good, it will be at its most vulnerable. That will be the point where we will get a true test of how strong the buying demand really is. But I am getting way ahead of where the market is now.

For now, we head into tomorrow with the broad market indices trying to rally off their lows. A short-term downtrend has been broken and we are coming out of an oversold condition with room to run before serious resistance is met. If this can't entice buyers to step in from the sidelines, I am not sure what would. And that is where I will pick up in the morning. Have a nice evening.

Chart Courtesy of Thomson Reuters

Index Index Value Point Change Percent Change
S&P 500 (SPX) 719.6 43.1 points 6.37 percent
Dow Jones Industrial Average (DJIA) 6926.5 379.4 points 5.80 percent
Nasdaq Composite (COMP) 1358.3 89.6 points 7.07 percent
Russell 2000 (RUT) 367.8 24.5 points 7.13 percent
CBOE Market Volatility Index (VIX) 44.37 -5.31 points -10.7 percent

Charts Courtesy of Thomson Reuters

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