The late frenetic stock market rally is nothing short of awe-inspiring and has deluded many market participants into thinking that the market has bottomed – however, I believe the evidence points to the direction that it has not.
Bear rallies can be exceptionally strong and stretched out, causing a lot of fear of missing out in those that do not know how true bottoms form.
If this is not the bottom, who’s really behind this rally? The latest comments by the Fed were pushed by the mainstream financial media as dovish, making people believe that a pivot from a high interest rate environment might be just around the corner.
There are a lot of pointers that this was both a short-covering rally, as well as a one-of-a-kind FOMO moment for both bottom-fishing money managers (who are at the time of posting this article 85.4% invested on average) and amateurs taking the Fed pivot bait.
In short, the retailer is back. Once again there is massive retail options trading taking place, with an extreme spike in early February (see chart below). This is mirroring reckless all-in behavior by clueless amateurs buying into the media frenzy of AI stocks or other battered tech stocks such as facebook (META) and reminiscent of the 2021 meme stock rallies.
Trouble is, these rallies can go on for far longer than we’ve seen so far. In the dot.com bear market, there was a 51% rally lasting over 4 months from bottom to top. In the current rally, we’re barely up 20% on the indices. No one says the rally has to go that high, of course, but once again patience remains a highly valuable asset for such environments.
