Last Friday’s and Monday’s rallies were highly convincing to those that are desperately seeking to deploy their money in the stock market again. Many a stock jumped – some say it was on lowering inflation fears, some say on contrarian over-bearishness (which I don’t see), others likely took a few analyst upgrades as the ‘Go!’ signal they’d been waiting for. It’s very dangerous not to have a clear strategy when to be in and out.
There are numerous services, newsletters and reports out there that are touting the arrival of a new bull market, even a popular trend-follower whom I’ll leave unnamed here appears to be on the verge of breaking protocol – the FOMO experienced by many active market participants seems to be overwhelming.
At this point however, it’s important to remember that a new bull market is not only characterized by the technical action of the popular indices.
First, if we are going to mention technicals at all, I feel it’s necessary to point out the obvious to everyone: To date, NO single average has properly reversed its downtrend. We are still logging lower Highs and lower Lows, trendlines remain unbreached except in the Dow. The Dow is also the thinnest index of all, full of defensive stocks, its action was not confirmed by any other index, and a higher rally High was not made yet.
More importantly, we need to disentangle ‘the market’ and stocks. While people start salivating at the the NASDAQ Composite and the S&P 500 coming close to their long-term trendlines, to their long-term moving averages, trying to move through, it’s easy to forget that the stock market is no one thing. The stock market consists of thousands of stocks, some of which perform better and some poorer.
That means, for a true turn to occur, we need to see the better stocks starting to perform even better, to outperform the market by leaps and bounds. The leaders need to lead. This has happened at every single bear market bottom in history.
So far, this is not the case here. There’s barely a stock worth mentioning after 3.5 months of a rally, the existing prodigies have already jumped ship, and speculators are starting to pile once again into old merchandise. AMD, Nvidia, Shopify, Block, Wayfair, the good old Tesla, and many more. As Jim Rogers said, generals always “fight the last war, and investors always invest in the last bull”.
Essentially, these two days of rally were a sacrificial offering of money to the gods of the markets and to the priests of overhead supply. While people were exposing themselves eagerly to risk, the market’s benchmarks once again have entered extended whipsaw territory in the short- and intermediate-term trend.
Any and every rally has some stock that looks flashy, some setup, some opportunity. But in the end, it’s all about odds … thus the opportunities will be marginal ones.
You can doubt this rally from many perspectives, including earnings metrics, statistics, or anything else. However, the most conclusive insight is given by the market itself. And from my vantage point, it is not rampantly bullish.
So far, I remain starkly unconvinced on the sustainability of this rally. Keep in mind that such bounces can range 15 or even 21
