What it is:
A technical rally is a price increase brought on by traders reacting to signals from technical analysis.
How it works (Example):
A technical rally occurs after a security has experienced a substantial price decline and begins to recover its market value. The price increase is not due to any change in the fundamentals of the issuing company. Instead, it's the result of traders using technical indicators like price momentum and support/resistance levels to determine that a stock is oversold.
Why it Matters:
A technical rally represents an opportunity for short-term investors and day traders to make a profit. But it's important to remember that a technical rally is ephemeral, and is highly contingent on moment-to-moment price movements. For this reason, it is important for long-term investors to recognize the difference between a technical rally and a long-term trend that reflects a company's fundamental value.