Smell the coffee dear...mmmmhh !

On Wednesday, the market carved out a climax reversal day. But it is a buy signal in a dangerous market? The last hour whoosh to the upside on Wednesday was a virtual mirror image of Tuesday's last hour spiral.

There are many who say the culprit for Tuesday's debacle was the fear that Countrywide was going down for the count. However, in reality, the S&P was solidly green going into the last hour or so when the plug got pulled. Ostensibly, the damage should be laid at the doorstep of the chairman of AT&T, who cited softness in business. So consumers are going to use less toilet paper, less toothpaste, and make fewer phone calls to those using less of the prior two items is the drill, apparently. In reality, the market has been sharply headed down since the closing minutes of 2007 when a market on close program ganged up on those scurrying out to festivities.

After all, as the weekly chart above shows, is it really so surprising with the most oversold condition by some measures since October 2002, that the market would find support at well, support?

And they say the market doesn't make sense. It doesn't make a lot of sense if you're mining for cause and effect in the news and the data points. It makes no sense if you're looking for reasons, fundamental or otherwise. Sure, eventually, the economy and the market will correlate with each other but "eventually" is a long time.

There is an old saying that it is the close that traders take home with them. Although the S&P broke the measured move support at the 1390 close, Wednesday's close was substantially above that level. Although the market reversed from its worst start in a new year since 1932, not all buy signals are created equal! In studying the behavior of the S&P since its inception, trade in the first quarter of a new year below the lows of December of the preceding year are inauspicious for the outlook of the overall year.

I believe there is a better than average likelihood that the bottom is in for the balance of the month and that the trend will be erratically up into the last week of the month. This will depend upon the ability of the S&P to recapture 1420 and hold it. If so, a rally to 1450 to 1470 may play out this month. A break of 1380 now on a closing basis could indicate that current levels are only the mid-point of a move lower.

If 1470 is offset and then 1500 S&P recaptured, I believe that there is even an outside chance of a new S&P high being made in the first quarter of this year. At the same time, my work suggests that the triple bottoms traced out on the S&P if a rally develops from here will be broken before the first half is over.

Whatever the cause, step on it and drive..!