The sharpest rallies tend to occur in bear markets. Market players just aren’t positioned for the upside, so once a bounce kicks in it gains steam quickly.
We had a particularly good example of a bear market bounce today. The point moves were big and breadth was strong, but volume was nothing special and there was a distinct lack of excitement. Of course, since the action was positive, we heard very little about the evils of computerized and high-frequency trading, which probably helped push things along quite a bit.
What always happens when we have a bear market bounce like this is the bulls start high fiving because they know for sure that we have seen the bottom. You will hear a lot of comments about how the worst is over and it's clear sailing.
While it certainly is possible that today’s action will mark a major turning point, there isn’t any hard evidence to support that conclusion. It really is nothing more than a low-volume, oversold bounce. Chances are good we’ll see some follow through to the upside in the next few days, especially with Fed Chairman Ben Bernanke on deck, but the odds that we will roll over again in the next couple of weeks and take out the recent lows remain quite high. Once Bernanke is out of the way, I wouldn’t be surprised to see the bears press once again.