Traders who have been looking for oversold bounces were growing very gloomy on Monday afternoon, when a spree of buying finally hit with about 90 minutes left in the session. Stocks had been drifting steadily lower most of the day, and breadth was around 3 to 1 negative, when there finally was some sustained buying that lasted into the close.
The indexes ended up in positive territory, and breadth ended up close to flat, but before the bounce, over 1,600 stocks were hitting new 12-month lows. Almost half of Nasdaq stocks are within about 10% of their 12-month lows, which is a particularly good illustration of how bad this market has been recently.
There wasn't any obvious catalyst for the strong bounce late in the day, but it is very likely that there is some positioning in front of the Fed interest rate decision on Wednesday afternoon. In view of how poor the market has been lately, a rate hike of a half percentage point is a pretty obvious buy-the-bad-news setup. The market has been anticipating the event for a long time, and when it finally occurs, it is a good opportunity for a relief bounce.
Of course, traders are very aware of this sort of action, so they try to move ahead of it. They start to anticipate the bounce action before it even occurs, and that is probably some of what we saw late Monday.
This sort of action is a bounce and not a bottom. The best bounces always occur in the worst markets. It takes time to repair extensive technical damage, but it is easy to be fooled when there are sudden strong bounces. Market players are very anxious to believe that the worst is over, but it is usually good to stay patient and wait for further confirmation.
It has been extremely gloomy out there, and that may help to keep this bounce going into the Fed, but it is still a bear market and will remain one for a while.
Have a good evening. I'll see you tomorrow.