Dow rallies, but can this bounce last?

Just when it looked like the stock market would never stop going down, it reversed course and went up a lot.

The bounce Thursday was a big relief to jittery investors. The Dow Jones Industrial Average gained 401 points, erasing some of the sting from the previous three-day rout that knocked it down 860 points. The rally put the Dow back in positive territory for the year.

Wall Street pros cited a number of factors to explain the move higher.

❚ Stocks “oversold:” The washout suffered in Wednesday’s 608-point Dow drop caused stocks to get too beat up and sentiment to get too gloomy. But that day’s pain came on lower trading volume than the two-day plunge ending Oct. 11. “That shows a decline in selling pressure,” says Mark Arbeter, president of Arbeter Investments.

❚ Good earnings news: A slew of strong profit reports from high-profile companies, ranging from software giant Microsoft to social media player Twitter to electric-car maker Tesla, reaffirmed the strength of the American economy and leading companies, says Bill Hornbarger, chief investment strategist at Moneta Group.

❚ Panic selling dries up: The market’s recent slide looked more like panic selling than investors making rational investment decisions, says Brad McMillan, chief investment officer at Commonwealth Financial Network. But the strong earnings reports allowed investors to recognize “that things are not as bad” as the recent swoon suggest.

But what matters now, is what comes next? Hornbarger says it’s a “little too early to signal the all clear.”