Glass Half Empty Rally

Retail sales jumped this morning. China said overnight that they would be at least open to negotiations on the trade war and Taiwan. 

And, yet, equities opened this morning with a sharp, Nasdaq-led gap down as NVIDIA leads lower by 6% on news of them facing a $5.5 billion charge as the U.S. restricts chip sales to China.

In other words, despite how many market players and pundits have declared the recent lows to be good lows, and despite a Treasury Secretary recently calling a top to the VIX, stocks are not acting in a manner one would expect for even a sustained bear market rally, let alone a significant long-term bottom--Good news should be great news, and bad news should be good news in the latter scenarios.

But neither is the case so far, as this morning's good news is either ignored or seen as bad news. 

In addition, as noted here and with Members, the "Magnificent 7" mega cap tech names have mostly performed suspiciously poor (AMZN GOOGL META MSFT, etc.) into the recent broad market bounce, raising the issue of whether they have already put in significant bull market tops and are now experiencing a standard bear market consolidation before heading lower into their looming earnings. 

One concept which seems lost on many, given recency bias, is what mechanically happens during a true bear market rally, of which we saw many in 2008, for example. Bargain hunters and dip-buyers rush in during each swoon lower, brazenly declaring the bottom is in, using any number of indicators which worked marvelously during the prior bull market.

Instead of a V-shaped rally to new highs, however, we then seen a brief, sharp rally morph into a rugby scrum of choppy action before the market rolls back over. At that point, initial dip-buyers hit the exits and increase selling pressure on top of institutions unloading shares, spiraling the market lower to breach recent lows and stage a new leg down. 

And this starts the entire process over again, with a new round of bottom-callers trying to find value which is not quite there, the essence of a bear market. 

I recognize many would still reject the idea we are, in fact, in a new bear market. But the longer we stay below a declining 200-day moving average (on the S&P, Nasdaq, Russell) the longer the bear sinks its claws into the action, especially when all the recent cheerleading of bounces could not even see the Nasdaq and Mag7 names break and hold back above the 20-day moving average.