One-Day Wonder or Key Turning Point?

Thursday's powerful rally had the bulls pounding their chests and the bears eating crow. But a full celebration, after the technical damage of the past three weeks, might be a wee bit premature. It's foolhardy to ignore a day where the Dow rockets up 200 points, but it's just as dangerous to close your eyes and plunge in blindly.

Let's start with the impressive internals: They were powerful, with A/D and up/down volume excellent. However, the Nasdaq volume was stronger Wednesday and Tuesday than it was Thursday. (See Rev Shark's comments on volume.) That suggests the larger institutions have yet to step into the fray, and they are what drive rallies further.

As mentioned in Columnist Conversation Thursday night, I prefer more measured market gains to spasmodic leaps upward. It simply is healthier to see rational moves higher -- i.e., five 40-point days over the course of a few weeks -- than one 200-pointer. These emotional buying frenzies have the whiff of panic to them, and that tends to have unfortunate consequences on both sides.

Additionally, a market rally does not make all of the prior concerns simply disappear. Oil prices, inflation, slowing GDP, waning earnings momentum and current account deficits do not merely go away because the animal spirits were in full throat for one day.

All that said, however, it would be plain ol' dumb to ignore the potential significance of a big up day after three weeks of selling. Prior to the move, many of the oversold and sentiment indicators had kicked over to full alert mode.

So the question that is now of primary concern is this: Was this merely a vicious bounce in a longer downtrend, or was this the start of something new and wonderful?

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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, and is a member of the board of directors of Burst.com, a streaming media software company. At the time of publication, Ritholtz had no position in any securities mentioned in this column, although holdings can change at any time. 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].