This was a big day. The Dow rallied more than 300 points off its initial lows; we essentially moved sideways since one hour after the open.
What does it mean? The most important development is we have broken the "sell on the rally" mentality; bears have had the rhetorical upper hand for over a month, but they were unable to mount even a modest late day selloff.
To be sure, it was still a down day, with three stocks declining to every two advancing.
Bears also argue that today was characterized by short covering, as the sectors that were most shorted--financials, retailers, and home builders--have rallied the most. That's true. And stocks with stronger fundamentals--pharmaceuticals, techs--have been on the downside.
But we hit several extreme technical levels at the open, which are indicative of at least a short-term bottom:
1) The CBOE Volatility Index (VIX) hit the highest level since 2002 at the open, and then quickly fell back, though still at elevated levels; this indicates fear spiked up dramatically.
2) New lows hit the highest levels since 2002
On top of that, beaten up markets rallied:
a) The U.K.'s FTSE index moved 7.5 percent from its high to its low to end at the highs of the day.
b) Brazil's index moved 5.5 percent from its high to its low and ended near its high.
This suggests a rally in Asia tomorrow.
Apple is the big test after the bell. If they put up good numbers, and then sells off, bears will say it's a sign we are not at the bottom.
Does today's action mean we are at a bottom? No, but at the very least bulls can argue it is the START of a bottoming process.
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