Restrained Rally Slowly Emerging

This column was originally published on RealMoney on Nov. 2 at 11:35 a.m. EDT. It's being republished as a bonus for TheStreet.com readers.

On Sept. 9, I outlined why it would take a few weeks for the enormity of damage from Hurricane Katrina to sink in. Among other disasters, I compared the hurricane to the impact of the 1973 oil embargo and the 1906 San Francisco earthquake: In each of those examples, it took investors a period of weeks to wrap their heads around the economic harm that had been wrought.

It turns out that this disaster was no different. Market participants' belated acknowledgement of the storm's massive impact led to the historical pattern repeating: Markets shook off the storm, rallying for few weeks, before pulling back. They then rallied one last time before calling in sick for the month of October.

And oh, how sickly they were. The action in the first two weeks of that frightful month did significant technical damage to equity markets as trend lines cracked, breadth decayed and a variety of other indicators went from bad to worse. The damage to investor sentiment was just as bad. ...