If one wants to be negative, volume could have been heavier but breadth was excellent and it was a very good follow-through day for the bulls. Volume for the entire three-day bounce has been only average, but a lot of folks are feeling much better now that we have regained about 10% and are back around the lows we hit in November and February. For the year the S&P 500 is still down 17% and the Russell 2000 down 22.5% but you wouldn't know it from the upbeat mood that a couple strong days produce.
The question now is whether we can go further without some backing and filling. The ideal bullish scenario at this juncture is some consolidation of gains through light volume pullbacks. We need the buyers who feel left out to provide underlying support and to keep the selling pressure from pushing us straight back down.
Although the media would have you believe the bear market is now over, I'm pretty confident it isn't going to be that easy. What we have now is a bear market bounce where a bunch of stuff flew straight up in V-shaped fashion. That is good for a certain type of shorter-term trading, but it is still too premature for position trading. Position trades take a while to develop and we've only had three days of positive action with no chance of building bases of support yet.
A three-day rally does get folks excited, and if you timed it right and made some fast trades, you did well. But the real importance of this action is how it sets us up for the future. Is this the foundation of a real bear market rally that will go for weeks or even months?
That is what will really change the mood and deliver the big gains. We are going in the right direction and the news flows seems to be helping, so some optimism is justified.
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