We bring this public service announcement to you because the current market rebound from its Feb.3 low is currently under the microscope on Wall Street, but the jury is still out on whether this recovery has legs or is a merely a fake-out.
Some market bounces have staying power. Others do not.
There are "oversold bounces," which occur after stocks are pounded into submission in a short time span and then reverse course. These quick pops tend to be fleeting and often end prematurely, leaving bulls unsatisfied and forcing them to confront the prospect of a stock market transitioning from an uptrend to a downtrend.
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There are also "breakout" rallies, which not only erase all the losses from the preceding pullback, but also catapult major stock indexes like the Dow Jones industrial average and the Standard & Poor's 500 to new record highs.
Whether the recent rally turns out to be just an oversold bounce, or the start of a move to new highs, remains to be seen. The big challenge for indexes like the Dow is that a record high closing level often acts like a price ceiling. And it's not always easy for prices to break out above old peaks.
All investors can do now is watch to see if the major indexes are successful in making new highs, or if they fail. Failure would be a bearish development.
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