Benchmark indexes Sensex and Nifty staged their strongest intra-day comeback on Friday, ending around 4 percent higher after falling 10 percent early on. The upswing in European markets helped Indians retain their gains through the afternoon, but it may be early to say if things have turned the corner.

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Policymakers globally are still trying to figure the right measures to fix the disruption caused by the Coronavirus pandemic. More importantly, it is not clear how soon a vaccine for the lethal disease will be available.

These concerns will most likely weigh on the market for a while. Also, markets typically tend to take a while to recover whenever there is significant price damage, like the one seen in the last couple of weeks.

In the short term, one could see intermittent relief rallies, but these are likely to be short-lived.

So how come the market rallied today after being down 10 percent? Or have prices become attractive enough to prompt a change of heart in buyers?

No doubt, the steep fall has made a lot of stocks attractively priced. But relief rallies typically have less to do with fundamentals and more to do with technical factors like supply and demand.

Stocks do not fall or rise one way, no matter how overvalued or undervalued they may be.

When the outlook on the market turns negative, many traders short sell stocks. This can be done by selling futures of the stock, or by borrowing the shares for an interest charge and selling them. The expectation here is that prices will decline, allowing the trader to buy back the futures/shares at a lower price.

Unlike long term investors, traders need to consistently book profits, to be able to free up their capital and redeploy it.

Since it is widely accepted that even the most seasoned market players can’t catch the peak or bottom prices, it makes sense to take some money off the table when markets are very volatile and you are sitting on a profitable position.

So traders who have short sold would have covered a part of their positions on Friday, by buying back what they sold. This could be both for derivatives market trades as well as cash market trades. As soon as some players start to cover their positions, prices stabilize. When that happens, other short-sellers too decide to cover their positions, fearing that any rise in prices could reduce their profits. When too many players decide to cover their short positions at the same, the market rallies.

But after the short-sellers have covered their positions, you need fresh buying to take the market higher. If that follow on buying does not come through, the rally will not sustain.

Large investors are waiting on the sidelines for some clarity to emerge before they start pouring money into stocks in a big way. So a durable rally looks to be some way off.