There may have been some good reasons for the selling we saw on Tuesday, but it ended up being nothing more than another bear trap. The shorts were anxious to call a top in this market and were feeling like they may have finally nailed it, but we gapped up this morning and kept right on going until a bit of selling hit in the final hour.
Breadth was solid, but volume wasn't very impressive. While the action was quite positive, it didn't have a euphoric feel to it like the action on Monday. The main driving force was the weaker dollar, which is why oil, gold, steel, coal and commodities led. This inverse correlation with the dollar is getting a bit old, but as long as the market is focused on QE2, we can't afford to ignore it.
There isn't much at all wrong with this market action, but the bounce today lacked some vigor, and that makes me think we have a good chance of another dip in the near term.
NFLX's earnings after the close don't look that spectacular, but the stock is trading up sharply so far. I suspect some over-eager bears are being squeezed there. EBAY is looking quite positive as well.
We have a flood of earnings reports tonight and tomorrow, including AMAN and BIDU after the close tomorrow, so we should have plenty of action in individual names. We just have to monitor the dollar closely. If it stays weak, this market will continue to offer upside opportunities.