The Real Signs of an Intraday Rally

So now that I've totally broken you of any irrational hope for an intraday rally, I'm gonna tell you the rational, smart, empirical way you can predict a real rally.

First, you need an oversold market, and to figure out if we're oversold, you need an oscillator. Now there's some genuine Wall Street gibberish, but I'll translate: An oscillator measures the pressure that buyers and sellers put on the market. Simple, right? When the number gets negative -- say -4 or below -- that means there are a lot more people wanting to sell than buy. That's an oversold market, and you need at least a -4 there for an intraday rally to happen. There are a lot of oscillators out there; I prefer to watch Helene Meisler's tracking and analysis. When you get that low oscillator number, -4 or below, that's when the sellers will tend to subside and the buyers will take control.

The second condition for an intraday rally: very few bulls. We've got this now. The Investor's Intelligence survey comes out every week and tells you who's bullish and who's bearish among the newsletter writers. When we're at 40% or less with the bulls, where we are now, down from the mid- to high 40s, that's more tinder for a rally because you've run out of swing-bulls -- that is, bulls who move into the bear camp, sell stocks and drive them down. Instead you've got swing-bears, to use the electoral metaphor a little too much.

Third condition: Intraday rallies start late in the day. Anything that starts midday will fail because it brings out the sellers. Only the rallies that start around 2:45 p.m. ET tend to be successful, because they just blitzkrieg the sellers who don't have time to get out. But an earlier-in-the-day rally will do the Zuul thing to you again. It levitates, and then you've got a monster on your hands.