After the sort of move the market had the last couple of days it is important to keep in mind that a sudden reversal straight down is unlikely. It is possible we have some sort of surprise news, but without that sort of catalyst the likelihood is that very strong underlying support will prevent the indices from pulling back much.
One dynamic that many bears seem to overlook is the chronic underinvestment by many funds. According to a report from Morgan Stanley, yesterday was the biggest day of short covering for hedge funds since August 23, 2015. Funds went to 46% long from 43% long.
While that is a good amount of buying, what is most notable is that these funds still aren't 50% net long. That is an awful lot of buying power sitting on the sidelines and it is indicative of what others are likely doing as well.
All the cash on the sidelines creates a wall of worry -- but the worry isn't anything fundamental or technical. The worry is that you will be left behind and underperform. That is what keeps producing these V-shaped moves and run-ups that are so hard to keep pace with.
I'm one of those with too much idle cash, and I'm looking for stocks to buy. I am starting a position today in Dragon Wave (DRWI), which is ticking up a bit on news. I also am watching Pure Storage (PSTG) for a move through the $15 level. It isn't easy, but I'm slowly trying to put more cash to work.
The trend is up, underlying support is strong and dip buyers will be active. It's no more complicated than that.
Please note that due to factors including low market capitalization and/or insufficient public float, we consider DRWI to be a small-cap stock. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.