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Everybody Back in the Pool: Dow Soars 553 on 'Retest' Bets

Posted Nov 13, 2008 04:17pm EST by Aaron Task in Investing
Related: INTC, WMT, WFC, ^dji, ^gspc, XOM, AAPL

Thursday provided further proof the market is dominated by short-term traders, and that most of them are using the same playbook.

Major averages ended the session sharply higher, with the Dow up 553 to 8,835.25, the S&P higher by 6.9% to 911.47 and the Nasdaq up 6.5% to 1,597. Commodity producers like ExxonMobil gave the S&P a boost, as did gains for downtrodden financials like Wells Fargo and tech giants such as Apple.

But the gains came only after a midday swoon put the indexes at or below their October lows, a level many traders were eyeing as a low-risk entry point.

At their intraday lows, the Dow was below 8,000, while the S&P and Nasdaq were below their respective October lows of 840 and 1,504.

"We are buyers as markets approach those levels again," Barry Ritholtz, CEO of Fusion IQ, wrote on his Big Picture blog, noting markets typically move in a pattern of "bottom, rally, retest, rally."

Since major averages subsequently rallied about 18% from their October lows the first time, traders are hoping for a repeat performance.

Whether the "retest" proves as successful as the original remains, of course, to be seen. But gains by Intel, Applied Materials and Wal-Mart after each issued reduced guidance suggests traders' willingness to tolerate — even embrace — "bad news," at least for one day.

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