After a pounding on Monday, there is some routine oversold bounce action this morning. There isn't a high level of aggressive trading but the early lows are holding and breadth is running about 4600 gainers to 2100 decliners. The longer the early gains hold, the better the chances of more upside. Traders are focused on the opening gap and if initial lows are breached that will trigger some quick selling but for now there is hope that the worst is over.
The bulls are always hopeful that there will be a V-shaped bounce and that the aggressive selling that pushed the market into a downtrend will be forgotten. Psychologically it doesn't make much sense for the market to go back up in a straight line but in recent years it has helped quite frequently and was much more likely than not at certain times.
The V-shaped bounces are primarily driven by algorithms that take advantage of poorly positioned market players. They feed on the fear of missing out and can gain traction quickly the longer they hold up.
The indices are hitting the highs of the day as I write. Traders are going to keep wondering if a quick and easy recovery really is possible. I'm going to give them room to run to the upside but I'm not doing much buying at this point. I'm still holding very high cash levels and am not too worried about missing out but I've learned to never say 'never' when it comes to V-shaped bounces.