Friday's late day rally saved us from the dreaded 'bear market' label, but that didn't stop Barron's from putting it on the cover of this week's issue. But do not fret, it led off the nightly news on television, and the Associated Press had it as its top story as well. USA Today did not have it as a top story on Saturday though.
So if you didn't know we were in a bear market before this, now you have been warned that one is coming, just around the corner!
I do think the late day rally could have been options expiration related and therefore it's entirely possible we see some sort of unwinding of it on Monday. But my oversold window is still open for the early part of this week. After that it gets more difficult.
One thing I feel fairly certain of is that if we do rally early this week the calls asking if we're bottoming will be loud. You see my weekend Twitter Poll has 60% looking for the next 100 points in the S&P 500 to be to the upside which tells me folks are willing to believe something they weren't willing to believe on Thursday.
Away from that, I want to revisit the charts of the Russell 2000 and the Sentiment Cycle again. Last week, I noted I thought iShares Russell 2000 ETF (IWM) was at Panic. There is a rebound after that Panic low as you can see on the chart. But iShares Russell 2000 seems to be in the process of developing that rebound.
What I would like you to notice is what transpired after that Panic low. An awful lot of up and down. An awful lot. It took months just to develop that base. So when you hear, as you inevitably will once we get a bear market rally, is this the bottom? I want you to keep this picture in your head knowing how much work there is to do once we get some sort of low and rally. Also notice there are plenty of lower lows to be had. And that's if we were at panic.
Away from that, I see almost everyone who is a global fund manager believes that the U.S. is the best place to be in the world markets. Everyone says Europe will surely be in recession if it's not there already. Yet I see the Hong Kong market has not made a lower low than March. Neither has Germany or France.
Take a look at the German DAX relative to the S&P 500. Sure this might be like the March 2020 low but this time I can draw in a downtrend line that has been crossed. I hadn't realized Germany has been outperforming the U.S. for two months, did you?
France has outperformed the U.S. as well. This chart looks quite different than the DAX:SPX chart because this has a flat line that I'm watching. I have no idea why these two European markets have been outperforming the U.S. but they have and these ratio charts need to be watched in my view.
