The bear market bounce continued on Tuesday as market participants piled into index ETFs. Breadth was extremely strong, with around 7,400 gainers to just 900 decliners.
This was top-down action, with the indexes being the primary focal point. New lows did exceed new highs, but both were at very low levels.
These counter-trend bounces can gain pretty strong momentum because there is a combination of poor positioning, fear of missing out (FOMO), and short-covering. The chatter about bottoms and a Fed pivot gains traction very quickly, but much of the action is just relief that there is finally some good upside after a relentless selloff.
No major economic news is coming up until Friday, when the monthly jobs news will hit. There is talk about OPEC substantially cutting oil supply, which may intensify concerns about inflation, but there isn't anything on the agenda to disrupt the buyers right now.
It is important to keep in mind that big percentage moves tend to occur in the context of bear markets. The S&P 500 has had daily moves of more than 1% on 30 days during each quarter so far this year. That also occurred in 2002-03 and 2008-09, which were also miserable bear markets. The lesson here is that macroeconomic drama creates big moves but can't be used for accurate market timing.
The market has gone from oversold to overbought pretty fast, but there isn't any immediate obstacle to more upside. There isn't much overhead resistance on the charts since things fell so fast, and the news flow is not at all surprising now.
The surprise news that Elon Musk has agreed again to purchase of Twitter (TWTR) at the original price of $54.20 probably helped the market mood a bit Tuesday. After all the drama, it is a head-scratching decision, although it makes valuations in the social media sector look more attractive.
We will see how much longer this bounce can run but keep in mind that the reason that bear market bounces are so strong is because there are lots of people that are anxious to believe that the bear market is over.
Have a good evening. I'll see you Wednesday.