There are plenty of reasons to think the stock market has finally begun to nose its way out of the morass. There was the sharp rebound on Thursday, when fear had reached a fever pitch. There was the breadth of the rally in subsequent days, until today. There was the way the old leadership, big-cap tech, was now the laggard -- a good sign of a new bull phase. Yesterday the market reacted positively to signs of economic strength when only a week ago it would have retreated on the same news, focusing not on a profits rebound but on the reduced prospects for rate cuts.

It is all good, all reason to cheer. That said, for the rally to be real, it's gotta retest. And it looks like the first stage in that retesting process was today.

As any number of dip-buyers who have had their heads handed to them over the past year could tell you, plenty of rallies are fake-outs, brief sojourns on the way lower. Sometimes the market's initial bounce is just a matter of short covering, of investors who have bet against the market locking in their gains by buying back stock they had borrowed and sold at higher prices. And as it turns out, there have been some pretty big hedge funds short the market. Sometimes a bounce is just a matter of mutual funds doing a bit of jockeying to try and improve performance -- and whaddaya know, here it is, the end of the quarter.

What It Means

There's no real way to know if the buying we saw through yesterday was any more substantial than that. Certainly, one may have a gut feeling that there was a lot of money getting invested, rather than simply trading. One might even have anecdotal evidence that this has been the case. But you cannot be sure until you see how the market reacts to a selloff.

A down day like today amounts to "a test that tells you what kind of buying was going on in the rally," says Richard Dickson, technical analyst at

Scott & Stringfellow

. "If there was more serious buying taking place, chances are on any pullback, investors aren't going to be throwing in the towel."

That doesn't mean that stocks can't slip substantially. Rather, it means trading volume is lighter on the downstroke than it was on the way up. If, on the other hand, volume is heavy, it suggests that most of the people buying on the rally were just in it for a trade, maybe

short-covering. That would suggest that the market will fail the retest -- in other words, that it will slip below its previous lows. The information today is sketchy: about 1.3 billion shares traded on the

New York Stock Exchange

and around 2 billion moved on the

Nasdaq Stock Market

. That's on the heavy side, but it's hard to ascribe much meaning to it, because the market was probably due for a pullback after the gains of the last few days. The Thursday lows are still a while away.

How to Play It

Which brings up another feature of the retest -- it is important that it not take out the market's old lows. This is a sign that the people who were buying near the low remain confident in their decision, and they're back buying again. And this is hard, because seeing the market slip again is harrowing and can make these investors question why they bought, can even impel them to sell anew. And in the present case, technical analysts think that the market may dip quite near its old lows. And in the present case, technical analysts think that the market may dip quite near the lows it hit Thursday, when the

S&P 500

touched 1081 before rebounding to close at 1117. Today it closed off 28 at 1153.

"I would expect it to come pretty close, maybe a slightly higher low," says

Morgan Stanley Dean Witter

technical strategist Nora McAuley-Gitin. "And I don't think it's going to be one more low and that's it. Quite likely we'll see a number of rallies and tests."

While today's move down could end up being the beginning of a more serious retest, rather than just a bit of giveback after a big rally, McAuley-Gitin reckons that the really scary stuff is going to come next month or in early May. What the particular catalyst will be, she doesn't know. Perhaps it will tax selling, perhaps bad earnings news. Maybe the market will decide that the


isn't going to cut interest rates; maybe some piece of economic data will disappoint.

"From here, it's hard to pick the one thing that's going to set it off," says McAuley-Gitin. "It's going to find the reason, and then it's going to happen."