03May10:50 amEST

Feel Like a Curmudgeon

One area over the years I have learned where it is crucial to distinguish what sort of overall market regime you are in is when it comes to oversold potential rallies. 

In bull markets, especially those where The Fed is launching bazookas full of QE and other assorted monetary goodies for markets, aggressively calling bottoms to oversold markets can make one look like the next coming of Jesse Livermore and Warren Buffett all rolled into one big rocket ship emoji.

In non-QE bull markets (back in the day!), buying oversold markets often works, too, although occasionally you get slapped around a few times first. And there is also the 1987 scenario on occasion, too. 

In bear markets, however, as I contend we are in now, with all major indices below their respective 200-day simple moving averages (all declining in slope, too), buying oversold markets needs to be handled with much more care. After a rough couple of weeks for bulls, we did hit mildly oversold yesterday and subsequently reversed higher into the final hour. 

That reversal gave way to more bottom calls and calls for a major relief rally than I could keep track of, both on social media and on financial news television. While that rally may very well materialize, I would argue you cannot say that calling for a relief rally here is a contrarian take. In fact, it is now much closer to the safe, consensus call.

All of this is happening, of course, as we head into the FOMC tomorrow afternoon. With The Fed expected to tightening more aggressively than last time (paying homage to Coach Greg Doucette there), and quantitative tightening on the table, I will stick to my levels in lieu of going with the flow of the cool kids calling for a rally.

I still need to see QQQ hold back over $322 at a minimum for me to think a relief rally is in store, above all else. If that happens, and it must HOLD above it, not just poke above it, then I will respect the potential for a relief rally.

But consensus calls for a rally in a bear market are not my thing. Experience teaches me that they are often far more dangerous than many realize and can be devastating when they do not materialize. 

Here's the Punch Line One Word Best Describes This...


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