June 29, 2022
Good morning,
In March and again in May this year, we talked about the four steps that usually make for a market bottom (oversold, rally, retest, breadth thrusts). Both rallies, in March and May, failed at the retest step, and were consequently labeled bear market rallies. It also meant the market would likely have to begin the process all over again and probably at lower levels on the major market indexes.
The market is beginning to flash oversold signals again. Presently, Asset Managers have been positioned more bearishly only three times in the last 15yrs. That may not seem like a long enough time for a good sample set, but Financial Futures data only goes back to 2006. The combination of asset managers and leveraged funds are net short and in the bottom 5% of net positioning since the data began being recorded. When the two groups have been in their current positions before – only three times – the S&P 500 Index has tended to rise sharply.
Step one of the four steps to a bottom looks ready to support step two – a rally. Whether the potential rally is another bear market one or part of a bottom remains to be seen.
Be well,
Mike