It's Only Natural

After years of countless dips getting bought aggressively, "V"-shaping to fresh highs in short order even in the face of seemingly insurmountable bearish headwinds, it is only natural for shorts to now be concerned about getting caught up in a vicious squeeze at any moment.

Similarly, it is only natural for bulls to now fear missing out on yet another in a long line of monstrous rallies after each and every pullback since 2009. 

However, the issue with that view would be if we are now, truly, in a new market regime, transitioning from long-term bull to bear. The March 2020 COVID crash had tons of downside velocity but was but a blip in terms of time. The 2022 pullback clearly had duration and covered some ground to the downside, but did so with a falling VIX and very little palpable fear, as evidenced by how quickly bulls came back with no risk aversion in 2023/2024. 

All of that is to say we have not seen a true, sustained bear market with climactic selling since 2008/2009. Sure, we have seen tough corrections, tedious markets, and then 2020 followed by 2022. 

But should this current market prove to be the beginning of new bear trend, then the current selloff is not likely to follow such a predictable course. 

Specifically, the S&P 500 Index came within seven handles of testing its 200-day moving average (yellow line on daily chart, below) for the first time since November 1st, 2023. The 200-day is a widely-watched reference point, even by non-chartists and normally technically-hating market players who get nervous in pullbacks and sneak a peak at the chart, inevitably.

Hence, it is often a self-fulfilling prophecy that the 200-day carries market significance. 

In the current scenario, again, if we are truly in a new market regime then a 200-day bounce would either be short-lived for a few days at most (effectively trapping in dip-buyers) and lead to meaningful new lows, or not even really bounce at all for longer than an intraday move.