Email of the day on bear market rallies or a sustainable low
Comment of the Day

August 18 2022

Commentary by Eoin Treacy

Email of the day on bear market rallies or a sustainable low

Eoin, why do you believe that we are seeing no more than a continuation of a short covering rally. Surely you must concede from a pure technical perspective that the charts in the US in particular look very encouraging. The high valuation names largely stopped falling in May, and trended sideways for the better part of two months, and since then have seen a succession of higher lows and higher highs in a fairly consistent pattern.

The Nasdaq, S&P and Dow bottomed later but have very similar looking chart patterns, and all of these broke through their 50 day moving averages, and then successfully tested them before marching higher.

They have all retraced approximately 50% of their losses now. Inflation looks to have peaked, and while that does not suggest it goes straight back down again, surely does the market more good than harm.

Having sat on my hands when this last deep correction came and went, I am impatiently biding my time to get involved again, but I am starting to doubt whether the opportunity will come.

Eoin Treacy's view

Thank you for this email which raises some important points about the strength of the rebound. I started closing out my shorts in July because I was expecting a rebound. I sold out completely on the Nasdaq’s move above 13,000 because there was significant scope for profit erosion on my initial sale price close to 15,000. Deep short-term oversold conditions result in short covering rallies. Sustainable lows need macro conditions to support bargain hunting.

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