Was Monday's rally a mirage?

OK, investor, now what?

Monday's spectacular 497-point gain on the Dow was followed by a 115-point loss on Tuesday, leaving the closely watched index at 7660.21.

Which brings us to a quiz – and a point. First, the quiz. On what day did the Dow notch its largest percentage gain?

(a) March 15, 1933 – the first day of stock trading after President Franklin Roosevelt took office.

(b) Oct. 21, 1987 – the day after the Dow reached its low for that year.

(c) Oct. 13, 2008 – 10 days after the House passed the emergency $700 billion Troubled Asset Relief Program or TARP.

The answer is (a). The index has never again matched that day's 15.3 percent jump, which came after the New York Stock Exchange had suspended trading for more than a week while Roosevelt grappled with runs on the banks. Choice (b) was the seventh-biggest gain at 10.2 percent; (c) was the fifth-biggest at 11.1 percent.

Sell-offs come first

All these big days came after big sell-offs. Only the first two – (a) and (b) – signaled the start of real bull markets. Most of the rest of the Dow's big days were bear-market bounces during either the 1929-1932 era or the current crisis. (See the Dow's largest percentage gains and losses here.)

So will Monday's rebound – the 20th largest for the Dow – be remembered as the start of something great?

Judging by the historical record, probably not. Then again, the outlook for the economy is starting to brighten into glimmers of hope.

Optimism?

Housing reporting Monday and Tuesday suggests that home prices are stabilizing. In testimony before the House Financial Services Committee Tuesday, Treasury Secretary Timothy Geithner and Fed Chairman Ben Bernanke sounded cautiously optimistic.

Mr. Bernanke likened the initial turmoil to the early chaos of battle. "I think we've gotten to the point now where we can see the terrain and we are taking the steps necessary to stabilize the situation," he said.

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