Bear Market Bounce Boosts Hopes

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After getting pounded last week, the major indexes delivered an oversold bounce of more than 2%. Small caps lagged and breadth could have been better, but breadth wasn’t bad at a little better than three to one. New lows hit around 300, which isn’t great, but is staying contained for now.

This is a pretty routine bounce after some very ugly action and is the sort of action that is often sold as stuck longs look for escape and short-term traders take some quick profits.

There were some signs of fear of missing out, but the momentum cooled as the day progressed, and relatively few stocks finished the day at highs. Oil managed a sizable bounce, which helped the indexes, but it was mainly index-driven action rather than sector or stock driven.

Conditions are good for a bit more of a relief bounce, but this market is very wary of more negative macro news. The debate over the potential for a recession has been heating up, and there are no signs yet that inflation is topping out.

On Friday, there will be a massive rebalancing of the Russell indexes as well as other indexes. This is typically one of the highest volume days of the year, and there is likely to be some preliminary positioning before the rebalancing at the close on Friday.

It is a relief to see some bounce action, but this is still a very ugly bear market that will need numerous days like today for the character of the action to shift. Stay very aware of your time frames and focus on capital preservation.

Have a good evening. I’ll see you tomorrow.