A roller-coaster day of trading on Tuesday ended on quite an upswing for the major indices. The Dow Jones Industrial Average increased 2.3%, the Nasdaq Composite increased 2.1%, and the S&P 500 increased 1.7%.
This morning, however, there has been no follow through -- not yet anyway.
The S&P futures are down 16 points (but they had been down as many as 33 points); the Nasdaq 100 futures are down 26 points (but they had been down as many as 88 points); and the Dow Jones Industrial Average futures are down 121 points (but they had been down as many as 296 points).
Depending on one's vantage point, then, there is some good resilience to selling efforts shining through or there is some lackluster conviction on the part of buyers.
Welcome to the aftermath of a jarring market sell-off.
Notwithstanding yesterday's rebound, it's expecting too much for the recovery effort to follow a vertical line knowing the stock market is frayed around the technical and psychological edges. The stock market has to go through a test phase to determine just how much conviction there is in buying efforts.
It is in that test phase; hence, one shouldn't be surprised to see more roller-coaster trading action as market participants seek some convincing definition of a bottom in the bottoming-out process, which oftentimes includes some worrisome speculation about fund closures, redemption requests, and forced liquidation as the dust is trying to settle.
The stock market, therefore, is all about tape watching at the moment.
There will be some individual movers drawing some added interest -- like Snap (SNAP), which is up 22% in a short squeeze after reporting better than expected fourth quarter results, and Wynn Resorts (WYNN), which is up 8% following the news that Steve Wynn has resigned as CEO -- yet the focal point is the behavior of the broader market.
On the latter note, one of the encouraging signs in Tuesday's rebound effort was the outperformance of the cyclical sectors. Their relative strength suggested investors were refocusing their thoughts around the understanding that economic growth is picking up, which is to say there was an aim to refocus on the fundamental picture.
That fundamental picture also incorporates some impressive earnings growth. According to FactSet, earnings for the S&P 500 are projected to increase 16.8% for all of 2018.
One can make an argument that the earnings growth was priced in, and then some, with the January rally, and that the recent sell-off has been a necessary reset to curb the speculative excess in prices and sentiment that accompanied that rally.
At this juncture, the increased trading volatility might be a welcome development for traders, but a return to stability is what investors are seeking.
What they seek might be elusive for a little bit longer as a test of sentiment in the aftermath of a jarring sell-off often includes a retest of the lows.