Poor action in Asia and Europe overnight created some intense negative sentiment that led to a very strong intraday bounce. As I've written a number of times recently the biggest bounces occur in poor markets. This market has definitely been poor recently and when we gapped down following soft earnings news from both Caterpillar (CAT) and 3M (MMM) the conditions were good for some bargain hunters to step in on the weakness.
In addition to the excessively poor sentiment another reason that we had some bounce today was that certain areas of the market have already undergone a significant correction. Biotechnology, home builders and regional banks have lagged today but all three sectors turned green at one point as well.
While the indices and most stocks finished well off the early lows it is still premature to believe that it is smooth sailing to the upside from here. Even with the bounce breadth was still 2,100 gainers to 5,100 decliners and over 1,350 stocks hit new 12-month lows. That is poor action even though it looked much worse early in the day.
The important thing about the action today is that it does help establish another support level. If that level can hold then the work needed for the market to regain its footing can proceed. Even with this bounce today it is nearly impossible to find good, positive chart setups. There are some things that have become oversold and found support but there is nothing to suggest that stocks are going to gain sustained momentum from here.
We have quite a few earnings reports hitting the rest of the week which will help determine where this market is headed but they need to be better than what we saw from CAT and MMM. This market is inclined to sell reports that aren't perfect and not many of them have been exceptional so far this quarter.
The market is still buried in the corrective phase but the action today is a slight positive that the bulls can build on. There is some substantial work that needs to be done to return to health.
Have a good evening. I'll see you tomorrow.