Stocks Bounce

End of Day Update: 

Stocks bounced decisively from recent lows following some journalists comments about something. While we could waste energy talking about who said what, the only thing that really matters is how the market responded. We exploded higher because recent selling was overdone and all it took was one little catalyst to set off a buying frenzy. While bears will point to how meaningless the justification for the rebound was, they are missing the point. We didn’t bounce because of a reporter’s comments, we bounced because the market was oversold.

Recent weakness flushed out many weak holders through a series of successive new lows. The pain trade convinced many that we were on the verge of a larger selloff. But we knew this selloff didn’t have legs when it kept undercutting prior support, but didn’t trigger a larger wave of technical selling. That told us most owners were content holding and were giving little attention to this minor move lower. When the masses don’t sell, supply stays tight, and we bounce.

While the market is set up to continue higher, don’t expect fireworks. Market moves tend to be fairly symmetrical, so a couple dozen point dip is frequently matched with a couple dozen point breakout. While it seems like 2,020 is easily in reach, we need to watch how the market trades at this level before deciding what to do next. Traders have been reluctant to buy above 2k and if this trend continues, the rally could stall on a lack of demand.

Wednesday we get the Fed policy statement and Yellen’s press conference. Expect some short term volatility as some traders impulsively react to the headlines, but its been a long time since a Fed action moved the market for an extended period of time. We rallied through easy money and now we’re rallying through taper. If the Fed continues to play their cards well, this statement will be ancient history by Thursday.

Jani