Was Today's Market Action Just a Trap for Investors?
The sentiment may have changed, but until there's confirmation that the trend has changed, risks remain in place.
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It Was a Good Day For the Market But That Is All It Was.
A decent bounce after days of heavy selling, but the underlying issues haven't changed.
The indices produced a decent bounce on Wednesday with breadth running strongly at around 68% of issues higher. The Nasdaq 100 (QQQ) and Magnificent Seven (MAGS) led the charge with gains of around 1.5% while the DJIA lagged with a move of about 0.5%.
Two catalysts drove the action: a New York Times report that Iran made indirect contact with the CIA about a possible off-ramp, and a stronger-than-expected ADP jobs report showing 63,000 private sector jobs added in February against estimates of 50,000. Neither was a game changer, but after days of distribution, investors didn't need much of an excuse.
There weren't any surprising new developments beyond those to drive the action. It looked primarily like a combination of hope and FOMO. With oversold technical conditions across various stocks, traders were willing to increase risk exposure, which produced the kind of broad participation that made the day feel better than it probably deserved.
Is the Worst Over?
It was pleasant to see some calm and positive action, but the billion-dollar question is whether this is a trap. Is it possible that the market has already discounted the impact of a major war and the chaos in the AI sector? Is that it? Is the worst over?
The likely answer is no. The underlying issues have not changed. Oil is still elevated. The Strait of Hormuz remains largely at a standstill. The inflation threat is real and growing. The Iran situation has no clear off-ramp despite the backchannel contact. What changed today was sentiment, and sentiment in the middle of a genuine geopolitical crisis has a way of reversing quickly when the next headline hits.
It is important, though, to be aware of how powerful a counter-trend rally can be when no one is really prepared for it. These bounces tend to be bigger and last longer than seems reasonable, and when that happens, FOMO bubbles up and causes real stress for the folks who took precautionary action. That dynamic may have just begun. It does not mean the low is in.
Game Plan
My plan is to remain patient and monitor closely the stocks I want to buy. As I discussed in the midday column, the bounce action provides useful technical levels. Those recent lows now serve as reference points for tight stops if you want to begin probing for entries.
If this downtrend continues to develop, we have to watch for failed bounces and lower lows. That is the essence of a bear market, and we are not yet in a position to rule it out. My trust level that we have a solid low in place is extremely low. I am also unconcerned about rushing to add long exposure. I don't believe missing today's bounce means missing anything consequential.
It was a good day. That is all it was.
Have a good evening. I'll see you tomorrow.
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