As of 1:10 PM Eastern, Apple (Nasdaq: AAPL) is up $2.30 on the day. You heard me correctly, the largest market-cap stock in the world has gained 2.2% on the same day that clueless pundits are inaccurately calling another Black Monday. That says a lot because Apple is a market leader.

Despite all of the fear surrounding China, Apple CEO Tim Cook said this morning that Apple iPhone sales are doing great in China. Apple is not the only stock that has bounced significantly since the open. Take a look at Netflix, Facebook, and Walt Disney.

The sharp decline in the stock market over the past week has been jarring, but is not uncommon. Since 1995, the stock market has dropped at least 7.5% from its peak at some point during the year.

Based on the S&P 500’s peak of 2134.72 on May 20, a 7.5% decline is equivalent to the index hitting 1,974.62. The S&P fell to 1,970.89 on Friday, Aug. 21. Big deal (not).

Today, the market experienced a last-gasp decline at the open due to panicking retail investors (not Roadrunner members, however!)  and has been rallying back up all morning thanks to Apple and extreme sentiment readings:

• The Volatility Index (VIX) hit 53.29 this morning. Any reading above 40 is an extreme spike that has been “exceeded only 3% of the time in 20 years and a level that has preceded stock rebounds.”
• S&P 500 futures opened 3% lower after hitting a multi-month low the trading day before. In 1987, 2001, and 2008, this condition has marked a bottom each time.
• After weeks where the S&P 500 dropped 5% or more, subsequent market action over the following 12 weeks has been positive 71.4% of the time by an average of 5%.
• Since 1980, whenever the stock market has declined 9% or more in a five-day period, it has marked a bottom.

Bear markets most often start because the economy is heading into a recession. In the current situation, employment growth remains the strongest since the 1990s. There are modest signs that wages are picking up. Household gearing is very low and has ample room to expand. All of this suggests a foundation for consumption to expand, not contract. 

Simply put, the U.S. economy is strengthening and bear markets don’t start under such conditions.

Also encouraging is the fact that over the past two weeks of declines (Aug. 7 through Aug. 24), the hardest-hit stocks have been large caps (-5.91%), not small caps (-4.72%). Small caps have performed well in 2015.

Large caps are typically multi-nationals with foreign-currency problems, whereas small caps are domestic companies affected by economic growth. According to FactSet Research, 23% of small-cap revenues are generated internationally, compared to 28% for mid-sized companies and nearly 48% for the blue-chip S&P 500.

Small-cap outperformance during a market correction is a good indication that the correction is technical, not based on fundamental economics, and consequently is unlikely to turn into a bear market.

One thing to keep an eye on are the 10-month and 12-month moving averages, which the S&P 500 rarely falls below at the end of the month, but is at risk of doing in August. Intra-month fluctuations above and below the monthly moving averages occur relatively frequently, so no need to discuss this issue further now.

Even if it the S&P 500 drops below these moving averages at the close on Aug. 31, the last two signals in 2010 and 2011 were false positives that the market quickly shrugged off.

Bottom line: Now appears to be a time to add to positions, not panic and sell at the bottom. I concede that the recent market decline has been sharp and caused some technical damage, which will likely cause some downside re-tests of Monday morning’s opening print, but the primary damage has already occurred and the outlook over the short term is bright thanks to extremely bearish sentiment (a contrarian indicator), as well as a strengthening U.S. economy (which augurs well for higher corporate earnings and stock valuations).