It is well known that bear markets can produce very large counter-trend bounces. Big bounces tend to occur in the worst markets due to the high level of emotions that are in play.
While it is understandable that traders have been trying to catch a turn, so far in May, they have failed at least four times to catch a sustained move. Each bounce failed, and there were lower lows for the S&P 500.
There is another bounce try underway now, and it looks like this one may have a better chance of gaining some traction. Conditions have been shifting recently, and that is provided a better platform for some upside.
The biggest shift has been the collapse in the retail sector. The entire sector was hit hard following warnings from Walmart (WMT) and Target (TGT) . That has caused the market to become much more concerned about a recession.
Ironically, slowing growth and a possible recession may help to deal with the inflation issue that has been plaguing the market. There isn't much that the Fed can do about the supply shortages causing higher inflation, but they can slow growth with higher rates and suppress the demand side of the equation.
There is some better action in the retailers that are reporting now. Dick's Sporting Goods (DKS) reversed sharply higher Wednesday following a gap-down open, and Macy's (M) is higher on its numbers after hitting a new low.
If the retail sector can start to find some support, that may indicate that recession fears are being discounted. In the technology sector, Nvidia (NVDA) was down Wednesday night on soft guidance but is indicated higher this morning. That is a sign that the bad news is already priced in, and buyers are looking for bargains.
I want to be very clear that we are just dealing with a possible counter-trend bounce at this point, and it is premature to even use the word "bottom." Quite often, these counter-trend bounces can be strong enough to convince some folks that a bottom has formed, but we don't even need to have that conversation at this point.
The best indicator of a tradable bounce is when stocks stop going down on bad news. We appear to have those conditions in place this morning.
If you are going to play a counter-trend bounce, then make very sure you are clear on time frames and that you don't let a failed trade turn into a long-term investment.