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Investors Are Giving Up Hope for Another Rally. Good News

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https://realmoney.thestreet.com/investing/stocks/rev-16111473
 
Investors Are Giving Up Hope for Another Rally. That's the Good News
 
Here's why traders can expect at least one good counter-trend bounce before the end of the year.
 
By JAMES "REV SHARK" DEPORRE
 
December 16, 2022 | 04:29 PM EST
 
A late-day bounce that was driven in part by option expirations cut losses for the day, but it was another poor session on Friday. Losses for the indexes ranged from 0.76% for small caps to 1.15% for the S&P500. Breadth for the Nasdaq 100/Invesco fund (QQQ) was a dismal 29 gainers to 73 decliners, and new 12-month lows for the overall market piled up to over 530.
 
The market underwent a significant change in character this week as a better-than-expected consumer price index report failed to influence the Fed, which increased its hawkishness when it raised rates this week. The Fed raised by half a percentage point as expected, but Fed Chair Powell made it very clear that there is still much work to be done to bring inflation under control.
 
The Fed is still very concerned about a strong market for jobs and that wages are still increasing. Workers are losing buying power due to inflation, but their wages are still strong.
 
In addition to wage inflation, there are growing concerns about a recession. Economists and strategists are becoming more convinced that a recession will hit, and there is still a great amount of uncertainty about the extent to which that has been priced into the market.
 
Technically the indexes breached some key support levels and are working to fill a gap on the chart that was created by a cooler-than-expected CPI report. There isn't much support out there down to the lows that were hit in October.
 
The good news is that sentiment is becoming extremely negative. Hope for an end-of-the-year rally has dropped sharply and many investors are ready to give up for the year.
 
There is a very high likelihood that we will see at least one good counter-trend bounce before the end of the year, not because of positive seasonality, but because of extreme sentiment and normal volatility.
 
Have a great weekend. I'll see you on Monday.