Market Commentary for Friday, February 25, 2005

Thursday was yet another example of two disparate trading sessions tacked together in a single day. The market was choppy and lackluster and with a modestly negative tone until about 1:10 p.m. when it switched to rally mode and rose straight up into the close. Nasdaq had been down modestly, but closed up 20.45 points. Overall, this was merely a short-covering rally caused by the market being heavily oversold on a near-term technical basis and we should take no comfort from it until we see some true follow-through buying.

What happened? People were sitting around waiting for something, anything to happen and a subset of them lost patience and decided to cash out their short positions and switch to long positions. That kicked off a significant short-covering rally. There might have also been a little real buying or some program trading that kicked off the rally.

The 2,025 level provided decent technical support for Nasdaq. We did set a new intra-day low of 2,023.00 for the current potential up-leg, but the rally suggests that the recent mini-correction may in fact be over.

It's worth noting that the one-month Nasdaq trend is now positive (albeit barely) for the first time this year.

Nasdaq trading volume was heavy (2.06 billion shares), and breadth was moderately positive, with 1.57 gainers for each loser. This was almost a strong rally, but breadth was too mediocre.

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