So far in May, the S&P 500 has tried to bounce four times and has failed each time. In each prior situation, it resulted in a new 12-month low. We will need to wait and see if the S&P 500 undercuts last Friday's lows and once again hits a technical bear market. If the S&P 500 closed at levels as of this writing here on Tuesday morning it would be its lowest close since March 2021.
The essence of a bear market is failed bounces, and we have an epic one this morning. Breadth was around 2 to 1 positive Monday but is now around 4 to 1 negative this morning. New 12-month lows have yet to really accelerate, which is a positive, but we need to watch this carefully. New lows peaked at around 3,000 on May 12 when liquidations hit, but there has been some mild relative strength in the worst stocks subsequently.
Many market timers are intently focused on negative sentiment and hope that it is becoming so extreme that a bounce results. The theory is that when everyone has given up and sold, then it only takes minor buying to help produce a bounce. The problem is that it is extremely difficult to know when sellers are finished.
My view of the market remains the same. It is better to wait for positive price action rather than try to guess at the bottom. I want to buy momentum rather than try to catch a turning point. This action is an excellent example of why I feel that way.
I see many great values out there, but they are still acting very poorly. Fundamentals will not protect us in a market like this. I'll keep watching them and will buy them when they have better charts and show some strength. That is not going to be today.
I'm excited about all the opportunities that are developing, but I am cultivating extreme patience and protecting my cash levels until I see better action.
The good news is that action like we are seeing right now is what really causes bullish sentiment to drop. The dip buyers are battered and bruised, and if this doesn't scare them out, then nothing will.