Stock Market Commentary for Thursday, May 19, 2005

There was certainly no lack of chatter for explaining the sharp 26.50-point Nasdaq rally on Wednesday (tame inflation, falling oil prices, HP quarterly report, etc.), but the rally was still based more on technical trading considerations rather than true economic and business fundamentals.  I suspect that there may have been at least a little real buying to keep the rally going, but short-term technical speculators and short covering were the more likely culprits.

There was some resistance at the 2,010 level shortly after the market opened, but very little, and apparently insufficient selling pressure to deter a sharp rally.  That's good news.

Besides the sharper point gain, a big difference from other recent rallies is that trading volume was finally heavy.  The bad news is that probably implies that a fair amount of the buying was due to short covering by anxious short speculators.  We'll need to see some significant follow-through buying over the coming week or else we could see a significant reversal.

Some of the gain could be technical trading based on Nasdaq having moved significantly above the January/March downward-sloping trend line.  That's actually a good thing, but a continuation of the advance requires real buying far beyond the hot money of technical traders and speculators.

Nasdaq trading volume was barely heavy (2.01 billion shares), and breadth was strongly positive, with 2.60 gainers for each loser.  This was finally a strong rally, although I would note that trading volume was only just barely heavy.

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-- Jack Krupansky