Everyone is calling this a bear market

We've had a good bounce since late May as I suspected could happen. I mentioned that in the 2001 and 2008 bear market years there was a spring/summer rally which was the last hurrah before the most damaging leg of the bear market took place later on in the fall. Is this what we are setting up for? My last post was titled "too many indicators suggest major bear market". The following are some reasons why this may be the wrong assessment. Typically, big bear markets start off as slowly trending down for several weeks and it's in the final stages when things really accelerate to the downside and you can get 3%+ gut wrenching daily declines. We've seen that type of scary downside action take place which would suggest that this "bear market" is close to its end not its beginning. Everyone is pretty much calling this a bear market now and many are bracing for a recession. Elon Musk today said he has a "super bad feeling about the economy". There's plenty of obvious reasons for concern, but could it be now that it's too obvious and that expectations now are too low?  Just prior to the low analysts and strategists were tripping over themselves to lower price targets and earnings expectations.  Low expectations are the bricks that can create a wall of worry. I'm not sure expectations have been lowered enough but they are heading in the right direction to create conditions for upside surprises later on.  

The following charts are contrary sentiment indicators which all suggest that this "bear market" could actually turn out to be a major correction and that it's now over or close to being over. 

Now, I know it seems hard to fathom that the market could have hit a major bottom but you know what? That's what a bottom usually entails. At a bottom things look ugly and hopeless. Someone who's bearish would probably respond by saying "you think this is ugly? Wait until you see what's coming!" To that I would say fair point. Things could indeed get a lot uglier, but they could also get better...or at the very least not be as bad as what everyone's bracing for and that would be good enough for the market to go up. Take a look back at the lows of  2011, 2016, 2018 and 2020. Most people were expecting lower lows. The charts I posted above all indicate expectations/sentiment is at a pessimistic extreme. I love that chart about bear market rally articles. It proves that pretty much everyone is calling this a bear market and that's a strong contrary indicator.  At the very least, these charts support the notion of a multi-week counter trend rally, and at face value it supports the notion of a major bottom. Does that last statement make you hot under the collar?  Did you shout "no fucking way" If you did then maybe I'm on to something. I'll say this...if I just woke up from a 3 year coma and was given those 5 charts I would characterize the market as a table pounding buy. But of course, I like everyone else am cringing about record high gasoline prices, sharply rising interest rates and war fears. 

Let's see how this is going to play out. In the ST the market is overbought but ST sentiment indicators, NAAIM  in particular, has lots of room to rise before getting overheated. If the market can manage to not fall apart while ST overbought it will have been the first time this has happened all year and would set the stage for at least a multi-week IT rally and possibly something more. 

Despite all the contrary indicators suggesting a low has been put in, I have some lingering doubts aside from the obvious ones (inflation, rising rates, war) which I''ll discuss in an upcoming post shortly.