A very gloomy morning set the stage for a sharp intraday reversal Thursday. Market players were hunting for a reason for the sharp turn and many speculated that it had something to do with the trade negotiations in China.
What is most likely is that with the market already oversold and the mood growing increasingly dark, the computer algorithms fired off some buy programs which caused a short squeeze as well as a belief that there must be some sort of positive catalyst at work.
After the initial spike higher in the early afternoon, the indices held steady and closed slightly negative. However, breadth remained quite poor and finished at around 2,700 gainers to 4,200 decliners. There were plenty of individual stocks that did not enjoy the computer-generated recovery, though. The poor breadth is proof that this bounce was driven more by computerized buying rather than an appetite for individual stocks.
Some market players are likely to be hopeful that this intraday reversal is a sign that a short-term bottom has been achieved. But it is unlikely that this action is meaningful. As I’ve often stated, bad markets tend to wear you out rather than scare you out. Major lows do occur on panics, such as what happened in 1987, but more often the bottom occurs with a whimper and not a bang.
Technically, the action Thursday didn’t change much. It is a positive that the S&P 500 did not close below the 200-day simple moving average again but the continuing testing of this important level is weakening it and increasing the likelihood that it will not hold should it be tested once again.
As I discussed in my prior post, the best bounces tend to occur in poor markets but the bounces also tend to fail quite quickly.
This market still has major issues. The bounce today simply delayed some of the pain.
Have a good evening. I’ll see you tomorrow.