This is how the painful retesting process works. It currently seems like nothing can go right for the market, yet this is what typically happens in the intermediate-term bottoming process playbook. We have referred to this as the “slop, pop, and drop,” where the market: (1) makes an initial low highlighted by an extreme oversold condition with a peak in volatility, (2) then experiences a sharp oversold bounce that recoups a significant part of the decline, and (3) ends with a retest of the low that brings demoralization and apathy. Sure, there are fundamental excuses for intermediate-term bottoms, but these types of declines are more about human nature following periods of rampant optimism, historically low volatility, and an extreme overbought condition.

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