I have stated that I don't think folks are as bearish as they were in May. I don't think they are as bearish as they were in June. And I certainly don't think the pullback in the last few days has gotten folks much more bearish. But I have a sense that if the mega-cap tech stocks rally on Wednesday, folks will become quite excited, quite bullish.
I can hear it already, the excitement building. You know what it sounds like: Microsoft (MSFT) said things didn't get worse! Google said things were not as bad as everyone thought! It's only currency headwinds, not business slowdowns! And the stocks rally. And folks start talking as if all their hate for tech stocks a few weeks ago didn't really happen. They didn't really mean it, it was just a small tiff, a minor skirmish with their beloved tech stocks.
And once again that will lead to cries that the bottom is in.
They might not even care about the Fed, because beloved tech is doing well. But if my scenario is correct, then we should get another rally into what my Oscillator says will be the next overbought reading. My notes say that if we can pop here we'll be back to an overbought reading Friday/Monday.
But let's take a step back and look at the chart of the S&P and how this particular rally looks so different than the prior rallies in 2022. The January rally lasted a few days (green arrow). The March rally lasted about 3 weeks at most (blue arrow). The May rally lasted a week or two (red arrow).
But the latest rally hasn't been straight up. The latest rally has been stair step. And that makes this rally look different. It has also lasted over a month. Traders hate this kind of action because it feels like it is whipsawing you up and down but overall I think it's what has made folks more complacent.
Investors (as opposed to traders) feel better when the trend is upward. Investors feel better when the moves upward last longer than a few days or a week, when they can step back and see higher lows on a chart. It gives them a feeling of security.
If we look at the McClellan Summation Index we can see the higher low I wrote about a month ago, and now it is desperately trying to get itself up and over the zero-line for the first time in 2022.
So, I fully expect that if the Fed doesn't tank the market on Wednesday, we will see a big shift in sentiment as we head into the end of the week.