The market is trying to decide what to make of recent rebound action.
U.S. stocks began the week in a precarious state, according to Real Money columnist James ‘Rev Shark’ Deporre.
“The big question for market participants this week is whether the gain last week was a major technical turning point or just a very energetic bear market bounce,” Deporre wrote on Real Money recently.
“In the last 20 years, the Nasdaq has only seen bigger gains off lows, three times. Big bounces occurred in 2002, 2009, and 2020, but, in each case, it was a turning point for the market and each of these huge bounces were significant market lows.”
A Change in the Action
“There was some great price action last week, and one of the most notable aspects of it was that there was a focus on picking names that have been hit the hardest as the market corrected over the past years,” Rev Shark noted. “Fundamentals and valuation mattered.”
The week was capped off by some very crazy action at the close on Friday as index rebalancing occurred.
“A few stocks like Shopify (SHOP) – Get Shopify, Inc. Class A Report went crazy,” Deporre said. “The bears are scoffing at this bounce and pointing out that nothing changed. There is no end in sight for the Ukraine crisis, the Fed is just starting to raise rates, and concerns about a recession or stagflation are building.”
So, “in short, there was no positive news development to drive this action.”
According to Rev Shark, the bulls’ response to these pessimistic arguments is that the market is painfully aware of all the negatives out there and the reason that it rallied is that they have already been discounted to a great degree. Many stocks are good values already, and buyers showed that they appreciated that fact with the aggressive buying last week.
“The battle lines are very clear, and we need to watch the price action very closely,” Deporre added. “There is no rush for the exits, but there is plenty of caution and a very high wall of worry.”
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