When a market is as ugly as this one, the natural inclination of many traders and investors is to look for an oversold bounce or a counter-trend move. Even the worst markets don't go straight down without some relief, but the timing can be extremely difficult.
The justification for a bounce after big losses is always the same. Technicians tell us that conditions are oversold, which generally means nothing more than stocks have fallen much more than seems reasonable. There may be indicators such as stochastics or moving averages that quantify that designation to some degree, but it is basically just the belief that the selling has been extreme and won't continue in a straight line.
The other justification for a bounce in an ugly market is negative sentiment. The theory is that when everyone is extremely negative, then they have already sold and there isn't much selling pressure left. When there is a pause in the action, the buyers on the sidelines are likely to inch back in and produce bounce action, the theory goes.
The problem with sentiment is the presumption that a high level of negativity means that there is also a high level of liquidation. Typically in an ugly bear market, investors may be very negative, but that doesn't necessarily mean that they have given up. When they do give up out of disgust and dismay, it is called capitulation, but we have not seen extremely high volume or a huge jump in volatility indexes, which typically indicate that capitulation is taking place.
Catching bounces within a bear market is very different than catching a bounce or buying a dip within an uptrend. The main difference is that bear markets have extreme overhead resistance. A large number of folks are looking to escape the pain and misery into strength. They will feel better if they can cut their losses even a little, so they are inclined to sell into strength.
Another problem in a bear market is that the bounce buyers tend to be very short term. They will flip positions fast if they catch a move. In addition, bears also will look to reload short positions into strength.
The key to navigating all this is time frames. If you are going to play the bounce game, then make sure that you are managing positions tightly. Don't get sucked into declaring that the bear market is over. This isn't about making big market calls. It is all about trying to take advantage of the increased volatility that usually occurs in a bear market.
The biggest problem that bounce buyers face right now is that so many traders are looking for one. That means they will be faster to take profits when one does occur and are likely to kill counter-trend moves very quickly.