One of the unusual things about the trading range that the market has been in since early August is the vigor of the bounces. We are seeing our fifth bounce in the last two months and, once again, we have a string of strong upside days on declining volume with no intervening weakness.
What is most interesting about these bounces is their V shape. We go from a near breakdown (or an actual breakdown this past week) to an immediate straight-up recovery. There is no pause, hesitation or consolidation. We just go from straight down to straight up.
I suspect that this action is a function of computerized trading, which is highly dependent on creating momentum. Basing and consolidating action doesn't create opportunities for computers. They need to keep things moving at all times to make money, which means there's never a transitional phase.