The action today can be easily summed up in one simple phrase: a routine oversold bounce. After five days of selling and some acceleration yesterday, we were a bit too stretched to the downside and that brought in buyers looking for a quick recovery. It is exactly what you'd expect to see after a good bout of selling.
The more important issue is what happens next? Is the downtrend going to gain momentum or do the bulls find their footing and run us back up to highs?
Earnings are going to play a part in the answer and Google's (GOOG) report tomorrow night will be a good test. Usually, a theme such as "buy the bad news" or "sell the good news" will emerge, and that is what we'll have to watch for.
As for the bounce today, it was not particularly energetic. The indices added nothing after the gap-up open, and there didn't seem to be any rush to take advantage of the great bargains created over the past week. Typically, action like this would not be viewed as very bullish, and short sellers would be thinking about remounting some positions.
The dilemma is that these V-shaped bounces have burned the bears constantly the last few years and they have to be a bit reticent about being aggressive with shorts, even though technically this is not very impressive bounce action.
The price action intraday prevented me from adding much long exposure, but I'm not counting out the possibility of more bounce in the near term. Earnings may give the bulls some excuses to buy, and it never seems to take much to squeeze the bears. The charts need work, but buyers have not been inclined to wait once things turn up.
Overall, there was nothing special about the bounce today, and the risk remains to the downside, but the lesson of the market over the last few years has been not to be too quick to count out the chances of a V-shaped bounce.
Have a good evening. I'll see you tomorrow.