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The modern 'hypermarket' is keeping traders guessing

  • There's that old saying among traders: In great markets you can't get in; in bad markets you can't get out.
  • After dropping 2,800 points in a little more than a week, the Dow regained about 1,200 of those points (about 40 percent) by the close on Monday.
  • Even those who believe that the fundamentals have not changed are arguing that there are too many "weak longs" in the market.
Dow Jones Industrials' Massive One Day Drop Of 4.6 Percent Rattles Markets Overseas
Spencer Platt | Getty Images News | Getty Images
Dow Jones Industrials' Massive One Day Drop Of 4.6 Percent Rattles Markets Overseas

There's an old trader saying: In great markets you can't get in; in bad markets you can't get out.

We have gone from a "you can't get out" market at 2 p.m. on Friday to a "you can't get in" market at 2 p.m. on Monday.

We have gone from the big debate over the weekend — "are we at a tradeable bottom?" — to "too far, too fast." This has happened in two trading sessions.

After dropping 2,800 points in a little more than a week, the Dow regained about 1,200 of those points (about 40 percent) by the close on Monday.

Welcome to the modern trading age. I call it "the hypermarket."

Why the rally? Most traders believe the fundamentals are still intact: higher earnings and a global economic recovery. But many traders were forced to lighten up in the chaos last week.

"Anyone who had stock for sale sold it last week," Joe Zicherman of Stadium Capital told me. "But it's early in the year, and no one has any performance. You can't have any outperformance in cash. Now if you want your stock back, you have to pay up for it. The markets have sold out."

For a lot of traders, this is way too fast, and they have a point. The "correction" is only 6 days old, far too soon to call any bottom.

The culprit is the underlying euphoria that still pervades the market. "Investors are still kind of itching to buy here," Citigroup's Tobias Levkovich said on CNBC. "We need a little bit of that enthusiasm to calm down further. So we're still in euphoric territory for the probabilities of losing money."

Even those who believe the fundamentals have not changed are arguing that there are too many "weak longs" in the market.

"I think the market will come back and test the low at some point," Mark Fisher of MBF Trading said Monday on CNBC.

One warning sign, they point out: The Russell 2000 turned negative mid-morning, dramatically underperforming big caps, a sign the fear of a rise in rates is very real and a slap in the face of traders who keep arguing last week's move down was a "technical" correction. It ended the day up 0.9 percent, far underperforming the S&P's gain of 1.4 percent.

Those who argue that the correction was not "technical" but "fundamental," a response to the better-than-expected jobs report and higher wage growth, will be closely watching this Wednesday's consumer price index numbers as well as Thursday's producer price index.