It is premature to call a market bottom, but there was some classic capitulatory action Monday after the Dow Jones industrial average dropped over 1,000 points and more than 2,300 stocks hit new 12-month lows. After some full-fledged panic and doom-and-gloom in the morning, stocks reversed sharply and ran up into the close. By the time the closing bell had rung, the Dow had gained 100 points, and the Nasdaq went from a greater than a 4% loss to a gain of 0.7% gain.
Breadth was close to 10 to one early in the day, but at the close, it had improved to three gainers for every five losers. There was a nice long list of stocks that gained more than 10% during the day as well.
So is this it? Is the miserable correction that has plagued growth stocks, small caps, and other sectors and then spread to the indices and big caps over?
Action, like we had Monday, is a great start to a market turn, but the key now is some confirmation in the form of follow-through. Today is day one of a potential bottom, but more work is needed. The good news is that a reversal of this size tends to create a tremendous amount of fear of missing out. Everyone wants to put their cash to work at the exact low and today created the impression that this may be it.
We have a slew of earnings reports coming up, and the reaction to those reports will give us some further information as to whether sentiment has shifted.
Keep in mind that this market has tended to favor "V"-shaped bounces, and you can bet that there are many traders that are willing to help that become a self-fulfilling prophecy.
Make sure you have that shopping list ready. It should be a very different sort of market the rest of the week.
Have a good evening. I'll see you tomorrow.
