T3’s Take 3: The Negativity Bubble Gets Popped Again – T3 Live
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T3’s Take 3: The Negativity Bubble Gets Popped Again


1) The Bounce

Late last week, it felt like the bears were finally taking control of the market, but they were once again headed off at the pass.

The S&P 500 squeezed out a 0.9% gain while the VIX dropped -8.2% to 14.66.

The small cap Russell 2000 fell behind in the early going, but surged into the close to finish up 1.2%

Meanwhile, the banks showed serious relative strength, and large cap tech stocked bounced.

So it's the same old story — the bears string together a few small victories, it feels like we're ready for a real decline… and then out of nowhere, the bulls buy the dip and we head right back into the same old boring trading range.

It feels an awful lot like last summer, though this year's big snooze is a lot deeper, and a lot longer, as you can see here.

2) Rampant Negativity

So why did markets bounce today?

Simple — a lot of negativity has been priced into the market.

And negativity is what fuels bounces.

As I illustrated last Thursday, most sentiment indicators read bearish.

For example, the VIX curve inverted, and AAII's sentiment survey showed that just traders 29% of individual investors are bullish.

So while stock market valuations appear stretched, we are not seeing anything near the kind of optimism typically present at market tops.

In fact, at Thursday's close, the CBOE's equity put-call ratio was 0.96 — a super bearish reading typically associated with short-term market bottoms.

3) Fed Follies Continue

The market was closed on Friday, but we did get US economic data, most notably a miss in the CPI, which follows a weak March NFP report and some lousy retail numbers.

I took a look at the CME's FedWatch Tool and traders are indeed pulling back their rate hike expectations.

Traders now see a 47% chance of a June rate hike, down from 55%.

Gold fell 0.2% today, but it's still up nearly 15% from December lows, and it could be on the verge of breaking a descending trendline.


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