The “rubber band effect” (or “V rally,” describing how it looks on a chart) describes the stock market as like a rubber band, ready to bounce back from any large losses or gains. The “rubber band” description has long been in use; “rubber band effect” is cited in print from at least 1989.
     
       
New York (NY) Times
FUTURES/OPTIONS; Silver Prices Soar as Gold And Platinum End Lower
By THE ASSOCIATED PRESS
Published: November 16, 1989
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’‘I view it as the rubber-band effect,’’ said Bernard Savaiko, senior metals analyst with Paine Webber Inc. in New York. ‘‘Platinum and gold had already had good moves and investors viewed silver as too cheap relative to gold.’’ 
   
Google News Archive
26 May 1991, Prescott (AZ) Courier, “Interested in mutual funds? Pick a management strategy” by Roxie Webb, pg. 1D, cols. 4-5:
It is important to remember, however, that there is a rubber band effect which can make a slock jump in price dramatically when the buyers in the auction markets recognize value which went unnoticed for several years of so.
   
Traders Magazine
The Rubber-Band Effect
November 1998
By Stephen Lacey
The small-cap companies that made it to the secondary market before the initial-public-offering drought, and then survived a stock-market hammering, are now participating in an historic rally.
 
Bloomberg.com
Gold May Rise on Concern of Terrorism at Olympics, Survey Shows
Aug. 9, 2004 (Bloomberg)
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The longer the deficit keeps widening, the more the dollar will have to fall, creating a “rubber band effect,” Pierre Lassonde, president of Newmont Mining, said in a conference call last month. “When the rubber band breaks, you are going to have far more nasty surprises than if we had a very slow deterioration in the dollar.”
   
Google Books
The Options Course:
High Profit & Low Stress Trading Methods
By George A. Fontanills
Hoboken, NJ: John Wiley and Sons
2005
Pg. 199:
As traders, we always want to stack the probabilities in our favor, and this volatility “rubber band effect” is a terrific way of doing so.
   
MarketWatch
Goldman: Stocks bounce in ‘rubber band effect’
By Joe Mathieu
Last update: 11:01 a.m. EDT June 15, 2006
Steve Goldman, chief market strategist at Weeden & Co., that stocks are rising in a “rubber band effect,” following several days of intense selling. But have we hit bottom? Goldman says, “I don’t think you go from straight down to straight up. I think the markets will be working higher in the short-term,” before retesting recent lows later this summer.
 
Wall Street Fighter
Friday, May 16, 2008
6 Ridiculous Wall Street Slang Terms
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5. Rubber Band Effect—After a large sell-off in the market, there is a tendency for the market to bounce back right away. It is caused by computerized trading programs. It’s also known as a V rally due to how it appears on a chart. I also believe that ‘Rubber Band Effect’ would have been a great name for a New Wave Rock band in the 80s.
 
Bull Vs Bear
Monday, September 29, 2008
29 Sep’08: Expect Rubber Band Effect
As we have mentioned in the last update, on Friday nifty took the Asian market cue and opened weak and closed at the weakest point. During the day nifty breached all the important support levels and closed at the lowest point of the day. More importantly it has closed below 4000 mark which is considered to be an important psychological support level.
 
The Kirk Report
Friday, October 10, 2008
The Rubber Band Effect
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I’ve talked about this analogy before and I think it is more than appropriate to do so again. The market frequently operates like a rubber band. It gets too stretched (oversold or overbought) and we see a snap back. The more extreme the rubber band is stretched, the more extreme the subsequent bounce and sell off. We’ve seen this countless times over the years and have benefited tremendously from that as a result. In fact, I’d say that 90% of the money I’ve earned from the market in my career has been from positioning ahead of and playing these moves for all their worth.
 
The problem that we’re dealing with now we’ve seen absolutely no significant snap back which now opens the door to the question that no one (even I) wants to face. Which is, to put it bluntly, has the rubber band (i.e. the market) finally been broken? And, if so, what does that mean for the future of the market and the economy?
 
To make the assumption that the market cannot break ever is making a giant leap of faith which is ok to do so long as you recognize the fact that you’re making that leap all the same. In addition, to make the assumption that it will be a quick recovery to fix the rubber band (i.e. the market) is a tremendously tall assumption given what we’re seeing right now. While I don’t think that every company in America is going out of business and/or that we’re at the first stage of the next Great Depression, the market itself hasn’t told us anything different. At least not yet and, until that changes, we must at least recognize it.
   
Circuits Assembly
Recession Spells End of Foxconn Effect, Analyst Says 
Written by Chelsey Drysdale  
Wednesday, 22 October 2008
SAN JOSE – The top 10 EMS firms showed collective first-half growth of 4.3%, down from 20% last year, and the forecast, if not dire, is dimmer than before.
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On the flip side, some CEOs are saying a recession is good for contract manufacturers because OEMs are rethinking their strategies, and Flextronics is positioned to be a prime beneficiary of a new wave outsourcing.
 
“Is the rubber-band effect fact or fiction?” asked Pick. “The rubber-band effect was material during the last recession. But today is not 2001.”