Crazy Action

 | Oct 04, 2011 | 4:35 PM EDT
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After the intense selling Monday, conditions were ripe for a snap-back rally today. We finally did see a solid upside move in the final 45 minutes of trading, but it sure wasn't easy for the bulls. The morning bounce fizzled at midday on continued chaos in Europe and then Apple (AAPL) surprised a lot of folks when it didn't announce the much-anticipated iPhone 5.

Just when it looked like we were going to take out the opening lows, we had some well-timed Europe-is-saved news. The machines kicked in and the squeeze was on. The market blasted straight up and caught just about everyone by surprise. Many traders are saying that it was some of the craziest action they have ever seen.

The big question now is whether this very chaotic action today changes anything. Is the bottom now in? Are we ready to rally into the end of the year?

As I've been discussing lately, I do think that we need to break the August lows before we have a healthier market. We did that yesterday and today and, actually, had a pretty good washout. It was even better that there was some additional hesitation intraday before the bulls finally found their footing.

While I'm not ready to declare the lows are in for the year, I do think we have good conditions for more of a bounce over the next few days. The dip buyers are hungry to add inventory, the bears were bitten by the late-day reversal and the potential for more Europe-is-saved news is high.

The dilemma that position traders face in a market that is bouncing off annual lows is that there aren't any good chart setups. There are many oversold stocks and many that may be good values, but there is no leadership and no momentum. It requires a different approach than what you'd see in a normal uptrending market.

The danger of this sort of action is that it could influence you to ignore the fact that we are still solidly in a downtrend. One decent bounce doesn't do much to change the big picture. Be opportunistic and look to play the relief bounce but maintain some skepticism until the market does more to prove itself.

Have a good evening. I'll see you tomorrow.

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