Bottoming theory picks up support, but...

Small-cap stocks finally caught a bid with some teeth late Friday afternoon, and rejected a move to 5-year-plus lows with a breathtaking 11.5% rally off that bottom. Was that the reversal manna from heaven that downtrodden stock market bulls have been clamoring for? Here’s the short answer: I like the area we bounced from, but the patterns were not convincing enough to suggest a retest won’t take place.

Unfortunately, the pattern is simply not dynamic enough on weekly studies to say with certainty that the low is in place. Daily charts sport a nice bullish hammer pattern on candlesticks and momentum readings are so oversold that a bounce was more a matter of “when” rather than “if.” Without a more convincing weekly reversal in tow, the market will now need to chop down resistance points and retracement levels of the collapse to add validity to a recovery move that was already a little suspect. Why do I say it was suspect? Because the market was dramatically oversold ahead of a weekend, with a bank holiday Monday and sitting on the risk for a big announcement out of the G7 finance ministers who are huddled in Washington plotting new freebies for financial institutions in hope they will once again open the spigot on lending practices, to as President Bush put it Friday “grease the gears” of the economy. I don’t know whatever happened to the idea of saving for a rainy day, but I suppose that’s a debate for economists instead of chartists.

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