My how things can change in two weeks. On March 16, the Dow Jones hit a low of 11,548 and the bears were chomping at the bit, ready to take the market much lower. Things in Japan looked bleak at best and the world was holding its breath due to a pending nuclear catastrophe. Fast forward a measly 14 days and the Dow is 800 points higher and all is well with the world. How did that happen?
V-Shaped Bounce
Of course nobody knows the exact reason and there probably isn’t a single one but it may be helpful to venture a few guesses. First of all, I think the market was quite oversold on March 16 and snapped back to alleviate that condition. What is surprising to me and many others is the way that it has literally been a “V” shaped recovery. There was a lot of technical damage done on the way down and it usually takes some time to fix that damage before new highs are reached. Not this time.
Secondly, the conviction of the dip buyers has remained extremely strong. They have been so used to being rewarded for buying the slightest dip that they got antsy about not putting money to work. The fact that there were a few failed bounces didn’t faze them and their rewards eventually came. This should make any dips going forward even shallower.
I think the fact that the catalyst for the shallow correction was an exogenous event (Japanese Earthquake) and not something purely economic gave traders an excuse to buy back into the market when cooler heads prevailed. Some sort of economic calamity would have been much harder to justify buying the dip.
So where do we go from here? Anybody betting against the bulls has gotten thoroughly slaughtered so the last thing I would recommend would be shorting the market here. As always, let the market do the talking and go along for the ride. Stocks are telling you that they want to go higher. Let other people try and be heroes by calling tops. Your wallet will be fatter by hearing what the market is saying.
The “Teflon” Market Strikes Again is an article from: 
