The indices ended the day with only minor gains, but we finally broke the losing streak and had a classic bout of capitulation selling this morning. The mood was unusually gloomy early on, which resulted in a panicky drop. That washed out the sellers and set the stage for a rebound.
The buyers weren't overly aggressive, but they did gain confidence and pushed the action higher the rest of the day. We even managed to close at the highs, which is something we haven't seen in a while.
We were badly oversold with extremely negative sentiment, so some sort of bounce was not a big surprise. Unfortunately, too many people expected it a few days ago, and some were probably stopped-out in the sharp dip this morning.
Now what? Is the worst over and it's all blue skies and apple pies from here? That would be nice, but a market that goes straight down for eight days with that sort of velocity obviously has issues. If we continue to trend back up, expect a very bumpy ride. We have plenty of trapped bulls to deal with, not to mention a lousy economy and issues in Europe. The headline news is likely to continue to cause consternation.
Don't forget that market players will be looking ahead to the jobs report Friday morning. There are likely to be worries about that number, and that may sideline buyers tomorrow.