Market players want to believe that every bounce in a bear market is a major turning point. This positive sentiment helps to create very big moves, as we had over the last two days, but it results in misery when the bounce fails, as we are seeing so far Wednesday morning.
The indexes have given back a good-sized portion of Tuesday's gains, and now the focus is on filling the gap that was created at the open on Tuesday. Betting on upside gaps to be filled has been a very effective trading strategy this year, as every single bounce has been sold and produced new lows so far. We will see what happens with this one very quickly.
Breadth is the inverse of the last couple of days at around six-to-one negative. So far, the number of new lows is not expanding as we are still a good amount over the lows hit last Friday. Oil is the leading sector, bonds are weak again, and the dollar has regained its strength.
The big bounce over the last couple of days was accompanied by quite a bit of chatter about a potential Fed pivot. This seems to be a case where the price action was driving the narrative rather than the other way around.
There are no indications at all that the Fed is about to pivot, and they have made it quite clear. There are some signs of economic slowing, but the Fed has been fooled in the past and acted too quickly, and they have made numerous comments that they will not do that again.
I would love to be more positive and to keep predicting market bottoms like other pundits, but there is no evidence to support those views. The bullish narratives are built on hope and not facts or charts. The easiest thing in the world to do is to claim that "everyone" is negative, and therefore we have to go up, but there isn't hard data to support that theory.
The good news is that there are many great bargains developing, and we will eventually have another bull market. However, we have to cultivate patience and not let hopes and dreams drive our trading.