What's in Store for the Rest of 2004

"So where do we go from here?"

That's the most popular question I've heard since Monday's triple-digit gain. It's an issue worth exploring.

Before proceeding, however, I must advise you of my ground rules. I strictly adhere to the "one bite of the apple" school of market punditry: Once you call a bottom, that's it; you are done for that leg down. Until a bottom is actually put in, or a high above your call is made, you are out of the batter's box. You only get one shot in your bottom-calling crossbow. Once it's been fired, you must shut up.

Crying Wolf

James "Rev Shark" De Porre of RealMoney's Trading Diary is right when he refers to some people as serial bottom callers: They are to be ignored. Some of the same talking heads I see on the tube sound like the guy from the Verizon commercial: "Is this the low now? How about now? Now? Maybe now?" I suspect they are more interested in hearing themselves talk than in giving good advice.

As I've said in the past, bottoming is a process, not a single point. We did, however, see some potentially important action recently. The market exhibited major signs of attempting a reversal last week: On Tuesday and Wednesday, the indices gapped down strongly at the open, only to close at or near the highs of the day. A gap down -- only to close at the highs of the day -- is usually constructive action. It indicates that emotional sellers at the open are in the final throes of getting shaken out of long positions. Weak hands dumping shares eventually creates a selling vacuum, exhausting overhead supply of stock.

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Barry Ritholtz is chief market strategist for Maxim Group, where his research and market analysis are used by the firm's portfolio managers and clients in the U.S., Europe and Japan. He also publishes The Big Picture, his macro perspectives on the economy and geopolitics, entertainment and technology industries. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Ritholtz appreciates your feedback and invites you to send it to [e-mail].

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