Caution Remains (by Lance Roberts)

While the short-term technical underpinnings have improved as window dressing ensued, I remain cautious currently for several reasons:

1. The market is GROSSLY overbought in the short-term and must either consolidate at current levels or correct to lower levels to resolve it.
2. Negative trends are still in place, which suggests the current rally, while significant, remains within the context of a reflexive rally.
3. Volume is declining on the rally, suggesting a lack of conviction.
4. The current rally looks similar to the rally in 2008, except the fundamentals are substantially weaker. (i.e., valuations.)

NOTE: We are not saying the market is about to go into a protracted bear market. However, the recent 10%ish rally in the market is similar to what we saw during the 2008 market.

Notably, in early March, we discussed that after two-negative months of returns and the worst start to a year since the "Financial Crisis," it would not be a surprise to see a positive return. As noted in "The Revenant:"

"There is a high probability of an outsized reflexive rally over the next two months due to several factors. While we expect a significant rally from current levels, likely following the Fed's meeting next week, such should get used to reduce risk and rebalance exposures accordingly. 

• Extreme negative sentiment
• Bearish portfolio positioning
• Higher levels of cash holdings by fund managers
• Dumb money is bearish
• Put/Call ratios are offside
• The number of stocks trading at 52-week lows.

While the reflexive rally was likely, whether or not it turned into a sustainable "bull market" trend depends on whether recessionary factors persist.

With the yield curve rapidly inverting, the risk of a recession is certainly more elevated than it was a month ago.