Stocks Rebound After Brutal Sell-Off

As if this market wasn’t difficult enough to navigate as is, the market rebounded mightily on Wednesday, recovering a large chunk of the ground it lost on the previous day, as investors, who couldn’t sell fast enough into Tuesday’s close were tripping over themselves to add long-side exposure late in the afternoon. Following the previous day’s carnage, indications were for a bit of a reflexive move to the upside as the day got under way. Beyond the scale of the previous day’s losses, strong quarterly earnings reports from IBM and NTRS helped to boost sentiment early on.

Still despite the gap higher to start the day and an early gain for oil, which helped spur an advance in the energy sector, the action was choppy from the get-go. While strong, the initial move to the upside was met with resistance, and after a few attempts to build on the opening gap, bids simply dried up, triggering a swift move back towards the unchanged mark as the second hour of trading got under way.

However, once the major indices made it into mixed territory, buyers were able to move the averages back to the mid-way point of the market’s intraday trading range. Progress to the upside, however, was hampered by industrials, staples, utilities and consumer discretionary even though energy, financials and materials had made it back near their opening highs as the morning came to an end. For the next couple of hours – through the New York lunch hour and into the early afternoon, the indices chopped around in a relatively narrow lateral channel, but underneath the surface, energy and healthcare stocks were moving to their best levels of the session.

However, about 90 minutes before the close, a fresh wave of buying kicked in after forms filed with the SEC showed that various BAC directors had purchased shares of the company recently. While the propensity for the insiders of any financial company to buy their company’s shares at any point over the past 18 months has ultimately led to disappointment, the news likely triggered a wave of short covering, which in turn translated in to a mad rush to buy that spread to the rest of the market and lasted straight into the close.

When it was all said and done, the indices gained, on average, 4.15% on breadth that was just south of 16:5 to the positive. However, while the market wasn’t able to regain all of the ground it lost on Tuesday, probably the biggest positive was that volume was increasing on both exchanges.

Without a doubt, the losses this market has incurred since the beginning of the year has left us extended to the downside, and as a result, there’s plenty of room for this market to move to the upside if buyers can finally manage to engineer some upside follow-through. Given the positive reaction to earnings from AAPL (NSDQ: AAPL) after the bell, we may very well see Wednesday’s late round of buying continue on Thursday. However, we can’t for one second start thinking that the warts and pimples that have risen to the forefront once again are suddenly going to be relegated to the backburner. There are some serious issues with the financials that still needs to be accounted for, and until that happens, the broader market’s going to have a tough row to hoe.

Let’s go to the charts.

The Nasdaq popped higher during today's trade on an uptick in volume. Technology names rebounded from yesterday's sharp sell off with GOOG (NSDQ: GOOG) and IBM (NYSE: IBM) leading the way. Despite the strength today, the index remains below its 50dma and is vulnerable to further downside.

The S&P 500 (INDEX: $SPX) charged higher during today's session on light volume. Financial names saw oversold bounces with GS (NYSE: GS) and MS (NYSE: MS) leading the way higher. Though the index saw strength today, the index is below its 50dma.

The Russell 2000 (INDEX: $RUT) moved higher during today's trade and recouped a chunk of yesterday's losses. Overall, we continue to stay on the defense as the index is in a downtrend and below its 50dma.

 

Click here to receive Rev's free stock of the week!