Bottom In For S&P 500 SPDRs (AMEX: SPY) And Q’s (NASDAQ: QQQQ)? Asks Market Timer Frank Kollar

January 24, 2008 (FinancialWire) (By Frank Kollar)

On Wednesday January 23, 2008, after midday losses again decimated U.S. stocks, the S&P 500 SPDRs (AMEX: SPY) rebounded some 5.5% from intra-day lows and closed with a 3% gain for the day. The Powershare QQQs (NASDAQ: QQQQ) also rebounded from midday losses with a 5.8% gain above its intra-day lows. But the Q’s did not manage to close with a gain for the day.

What’s the deal? After reaching selling extremes, is a bottom in for stock market declines?

Looking at the S&P 500 Index (SPX) for guidance, we had intra-day lows exceeding those of the day before, and intra-day highs exceeding those of the day before. The SPX closed at those highs. This is a bullish outside reversal day, and a strong one at that.

Typically bullish outside reversal days are followed by higher highs. The expectation is that we will see a rally, at least for the short term.

But remember that the stock market has been correcting in expectation of bad economic news. There is a long way to go, and considerably more news ahead, along with likely poor earnings reports. The rally today does not mean the sky has stopped falling, only that the sun is peaking through the clouds and there is a strong expectation of some upside ahead. The clouds however, remain.

When making trading decisions based on an outside reversal, it is called trading reversals. Sometimes you win, but sometimes the reversal lasts only long enough to suck you into feeling warm and cozy. The markets then remove your funds in short order. If you do not understand how to spot the exit signs after trading a reversal, avoid trading and wait for a confirmed advance.

If you trade this reversal, keep your finger on the sell button and do not hesitate to exit on weakness. There may yet be lower lows ahead.

Kollar’s research has shown that the financial markets are in tradable trends approximately 80 percent of the time. FibTimer strategies define trends and trade them in both advancing and declining markets. Caring nothing about what newscasters say or what the latest economic indicator predicts, trends are where the profits are, and that is where FibTimer is.

Kollar is editor and chief analyst at FibTimer.com (http://www.fibtimer.com) which offers market timing strategies for S&P and Nasdaq index fund traders, as well as bond, gold, small cap, sector, ETF and stock trading strategies.