As the market finds it's bottom here, it's important to remember that the market does in fact, lead the economy.  It always has and it always will.

Yesterday's rally was great, but as expected, there was some profit taking.  But what we did not see is a return of the Institutional Investor.  The technicals all remained low in numbers.  This indicates a sense of uncertainty and that is to be expected.  These large lot traders depend upon historical statistics for buying and selling and right now the credit crisis has no precedence or historical patterns because it is a first based on magnitude.

For the first time in history, we are dealing with a global market condition rather than individual nation market condition.  So they are being more cautious.

Morning futures pre-market pointed to another big up day.  As I have said many times, "one up day does not a rally make", and we expected profit taking today after a record breaking run up day for name brand stocks on indexes. This is normal trading activity right now.  Short term profit taking to the upside and downside reflects normal trader reacting to day to day price action.

We are seeing negative institutional technicals on the Dow which historically has signaled early that a final low bottom price had occurred or was near for a major downtrend pattern, especially when it shows up 3 or more days in a row.  The last time we saw similar pattern was back in 2002 just prior to the final low of the Great Bear Market of 2000-2003.  

Early morning trading was very light overall which is interesting.  The interest rate charged between banks dropped so the credit crunch or hoarding of cash by banks is starting to ease.  Also money became available for small businesses to meet their short term debt obligations and payrolls, another big plus for the end of the credit crisis.  It appears the worst is over.  

Weekly charts show extreme dragon reversal patterns for all indexes.  It is important to view the long term scale as well as the daily scale on indexes and stocks so please remember to include this in your analysis.

What is critical to determine if this indeed the bottom are:

1.      The bottom is preceded usually by an extreme angle of descent that can last for several days.

2.      A final severe intraday fall that suddenly reverses at the end of the day to create the common dragon buy signal with an exceptionally long tail OR an indecision candle that has extraordinarily long wick and tail.

3.      A sudden reversal pre-market open with many stocks gapping upward and continuing up to close with many stocks gaining 10% and higher gains for that day.  Indexes usually close near their high IF this is a true reversal rally.

4.      The next day, either a resting day or if this is a strong rally, then another big up day with little or no overlapping of the white candles day to day and closing again near the high of the day.

5.      A third or fourth day of upside action but white candles begin to shrink in size.

6.      During all of the sudden move up, including the dragon formation day, volume is very high.  The dragon reversal day should have extremely high volume indicating an exhaustion pattern to the downside and buying intraday by institutions.

7.      The volume should continue to rise for at least 2 days as buyers gain excitement and rush into buy. If volume diminishes on the second up day, this would be a strong indication that the true low bottom has not been reached yet.

We can expect a sudden retracement on most fast moving upward action especially if there is another bout of economic bad news.  

Once stocks reach the original area of sideways action from earlier in 2008, that area where most stocks started the first bottoming patterns before the drawdown, then position trading platforms will begin to form.  

That means right now swing traders will find plenty of strong sudden moves up, followed by brief retracements that can be rather steep but short lived.  

I would be incredibly cautious with bank stocks as the industry is in shambles and there is going to continue to be some fall-out and a lot of changes as the governments essentially take them over via stock purchases.  

This is unprecedented in the history of banks.  No one knows exactly how this will impact the credit markets.  What we do know is that the banking industry and the credit markets will change dramatically from what they once were.

Ok! Ok! Ok! Our President and his cabinet is being our best buddies and giving all our money to banks, lenders and the stock market for the benefit of unfreezing the lending and get the economy moving! In the not to long run, the average US citizen someone how, someway will feel the brunt of this  decisions making in higher taxs or greater inflation or both. The rich banks and lenders get bailed out at the tax payers expense. Well this sucks!!!

Now we have gasoline prices, futures attache to the stock market. As the banks, lenders and stock market prospers (meaning the rich get richer), we the average US citizen get to pay higher and higher gasoline prices. Now that the stock market has taken a dive in reflection of what has happen to the banks and lenders, so goes the gasoline prices, down down down.

Currently for the average working guy and gal, driving to and from work, they are finally getting a gas price break!!! YEA for US!!!!

Ok, before we really fix this broken bank and lender problem, can we the US government get  oil and gas off the stock market, so the worker bees of the US economy can budget for all these rising gas prices.  Its only been the last 10 years or less gas has been growing with the stock market. Before then it was a slow slow slow rise.

Also, when gas prices were suddenly high these last 2 years or so, we all started driving less. Gas consumption went down and so did gas prices.

If our Government invest in clean alternate home made renewable energy systems, we create more jobs and further keep gas prices down. We we lower energy cost for business and the people, our economy can grow again and more!!!

With the climate getting warmer and warmer, fresh clean water across our country will also become less and less. Our country needs to create 1000s of more lakes to store energy from solar and wind power. We need to create 1000s of more lakes for farms and peoples drinking water. Our government needs to get involved in this on a big scale. Oh, the whole process will create more jobs and further help our economy. Then we need to plant much more tree in our country, for reducing air pollution\ CO2 and produce more clean air\Oxygen. More tree will make more  lumber and reduce housing cost. All these tree will produce more jobs and help the economy.

God bless USA! If we invest in ways that help ALL of America , then we make a stronger base, stronger stability, foundation for our economy! We also become more free-er, because as a whole our country becomes less influence by world energy problems. God bless our USA!!