The indices are holding up extremely well after a little nervousness early in the day. Breadth has strengthened and is now around 5,100 gainers to 1,750 decliners. There are only about 32 new 12-month highs which is a good illustration of how far this market tumbled in the past week. We have a long way to go before many stocks are even close to recovering.
The most notable aspect of the action so far today has been the dip buying. The Russell 2000 ETF (IWM) was negative this morning but the bargain hunters step up and bounced it almost perfectly off the 200-day simple moving average.
This is V-ish action but I do not expect a return to that pattern now that the short volatility trade has blown up. The V-shaped bounces are not normal human psychology and were largely driven by computer algorithms that were betting on slow steady uptrends rather than emotional swings.
It may be unsettling to some market players but what we are seeing is a return to 'normal.' Stocks are moving in both directions and emotions are a factor that are going to contribute to movement much more than in the past. The ebb and flow of the action can produce some great trading but if you have been used to chasing things that are moving straight up, it will take getting used to.
I'm looking to make a few more buys into the close but there is a higher likelihood than usual for some late weakness so I'm going to wait until the final hour before making any significant moves. The market is showing signs of stabilization, but it is still trying to digest some very big swings. The potential that we have seen the lows are pretty good, but the market still has some work to do to prove itself.