The Real Signs of an Intraday Rally

Fourth condition: Sometimes rallies can happen after the margin clerks clear out everybody who's bought stock on margin. If you buy on margin and don't have the moolah, the clerks will bloodlessly clear you out, but they don't want to hang on to the stocks, and they dump them. When the clerks are finished -- around 2 p.m. ET -- you get the rally. But margin debt needs to be dropping for this to happen, and right now margin debt is increasing dramatically, which is a very bad sign. You need the debt to fall because it shows the margin players are getting pushed out, the stocks are getting oversold and we're getting positioned for a rally.

You also can get rallies when the short-sellers cover; that is, when they buy up the stocks they've shorted to ring the register. Just like bulls, bears can make money, but in order to book their bearish gains, they need to buy the stock they've shorted. That buying can trigger rallies when we're down big intraday. Some people think this kind of rally is bogus, but who cares, if it makes you money?

Bottom line: Luck doesn't matter. Don't break out the kazoos and the drumsticks and the lucky hats to try to get the rally going. Intraday rallies are rare. Even if you get going from a standing start like we kind of did Wednesday, the market still can end up taking a huge beating by the close. Sometimes you can make your own luck, but not when it comes to a rally.

Remember: You still can spot a rally. Watch the oscillators go below -4, watch the percentage of bulls in the market hit 40% or less, wait for rallies that start after 2:45 p.m. ET, watch for margin debt going down instead of up, and finally, if the day is really bad, maybe you can catch a rally off the shorts buying stock to ring the register en masse and driving up the market.