Counter-trend bounces in bear markets tend to be very abrupt and robust. This is simply because most market participants are not prepared for them. We have a good example of this Tuesday as the indexes are exploding higher after an ugly fade on Monday that was triggered by negative comments from Apple (AAPL) .
There isn't any overtly positive news flow Tuesday morning, but there is some better action in Europe in front of a rate hike, and worries about a recession seem to have been set aside for the moment. Bonds are weak again and are not seeing "safe haven" buying that usually occurs when fear of economic slowing takes hold.
Market breadth is running very strong with around 6,800 gainers to just 1,150 decliners. Despite this and the fact that the Russell 2000 ETF (IWM) is leading, there are only about 20 stocks on my scans that are up 10% or more. Typically in a market this strong, there would be 50 or more.
Usually, when the action becomes more speculative, there are strong pockets of momentum. Traders pile into "hot" names, and that becomes self-fulfilling to some degree.
What we have Tuesday morning is action that is primarily driven by indexes and sectors. Banks ( (XLF) ETF) are jumping over 2%, semiconductors ( (SMH) ) are up 2.7%, and small-caps ( (IWM) ) are up 2.6%. Traders are buying ETFs and various indexes rather than individual stocks, and that is what is driving things.
The downside of this sort of index-driven action is that it can reverse very fast since it really has nothing to do with the merits of the individual underlying stocks. It is just big money flow that is looking to catch shorter-term moves. This is not buying by investors that believe the market has hit a low. It is trading of ETFs for some quick gains, and it will end very abruptly.
The question is, what will be the catalyst that causes this action to reverse? Will it be Netflix (NFLX) or Tesla (TSLA) , which report earnings this week, or will it be next week when the Fed raises rates and certain mega-cap names report?
Don't bet on a V-shaped move in this market but be sure to recognize that counter-trend action of this sort will run over anyone trying to fight it in the short term. One of these days, we will have action that is driven primarily by speculative action in individual stocks. Today is not that day.