It came much later and from a much lower level than many had anticipated but finally the long-awaited "oversold" bounce occurred and it was a good one. The DJIA gained over 1,000 points for the first time ever and the S&P 500 was up almost 5%.
There has been no shortage of indicators, statistics and contrary thinking that have indicated some sort of relief bounce was coming but the timing has been extremely problematic. Even with this giant bounce today the major indices recovered just two days of losses.
The key word to keep in mind as you contemplate this action is "bounce." It is premature to think beyond that at this point. There is no reason to believe that a bottom has formed and there is even less reason to think that an uptrend has started. It is possible that this may turn into a meaningful reversal but we need await further evidence. Keep in mind that the biggest bounces occur in the worst markets and that is exactly what we saw today. It is the failure of a bounce that brings the real pain of a downtrend and that possibility still exists.
Another issue to keep in mind is that stocks are still acting in very correlated fashion. Everything has been down lately and everything bounced today. This was not a market for stock pickers. The action is driven by the indices and the merits of individual stocks still don't matter.
Those that are technically inclined will now be looking for a "follow through" day sometime next week to signal that a turn is taking place. It is the follow-through day that sends the message that buying conviction is growing and that the trend has changed.
Action on a day like this creates what we have been missing lately which is the "Fear of Missing Out" (FOMO). If the market is going higher that is what we need to suck in more buyers. Don't expect a smooth ride but these bounces can often be much stronger than you expect and if a reversal starts to develop many will rush to protect gains.
Also, keep in mind, that it is going to take time for stock picking to improve. This market will be index driven for a while but once it finds some support than we can start picking some stocks again.
Lots of folks will be claiming that they called this turn. Let them brag a little even if they are still underwater. The key now is catching a trend and that is what we need to focus on. There is plenty of work to do if we are to navigate this market. Don't let one big day make you think that it is going to get easy from here.
Have a good evening. I'll see you tomorrow.
