Human nature never changes but markets do all the time. Holding cash is a good thing in falling markets but the danger is you never get back in because you are looking for some pattern to repeat that worked last time. When COVID reached our shores in March 2020, President Donald Trump wisely chose to lock everyone inside and turn off the economy. Stocks dropped 38% in three weeks. Bonds had no bids. The Fed stepped up, backstopped all asset classes and created the "V Bottom" of all time.

This economic period is quite different from any before it. We have just had two quarters of down GDP , typically the definition of a recession, but this time there are still more jobs to fill than there are people to fill them. The unemployment rate fell to its lowest level in decades last month and 528,000 new jobs were added.

When the economy was turned back on, there were dislocations everywhere. Workers moved out of cities. They changed jobs or quit working altogether. Jobs went unfilled even though wages rose. Rents went wild. So did home prices and insurance costs. Supply chains ground to a halt. The cost of a 40-foot shipping container peaked last year over $14,000 and has now fallen by about half and jams at the ports are subsiding. Airlines laid off pilots, crew, baggage handlers and mechanics. Now airline travel is a nightmare. The price of oil went crazy. Layer on floods in national parks, droughts in Italy, highest temps ever in the UK and people being washed away in Kentucky last week even as some folks insist the climate is fine. No wonder inflation surged to the highest level in 40 years.

I checked in this week with  Richard Eakle, the now retired former Chief Technical Analyst at Morgan Stanley who correctly warned us in summer 2021 that 94% of stocks were above their 200-day moving averages and stocks were picked over. He insisted it was a good time to raise cash and take profits while you still had them. A year later, all those numbers had fallen to at least the mid-teens in June except for the NASDAQ, which briefly fell to a low of 9%. That may explain why the NASDAQ has bounced the most of late. Just now those numbers are 23% for the Dow, 33% for the NASDAQ, 30% for the NAS 100, and 33% for the S&P 500. These are up from their recent lows but still leave a lot of room for continued improvement. Eakle believes June was the low.

Eakle agrees that Chairman Jerome Powell’s Fed is “data dependent,” which means that as the economy keeps growing, they will fight back with aggressive interest rate increases including a third one of 0.75% in September if the economy keeps chugging along. He doesn’t see the Fed relaxing its hawkish position until inflation finally abates.

Even so, Eakle observes signs of multiple compression reducing some of the absurd prices that were being paid for companies with no earnings and especially no cash flow. He also sees more and more stocks participating as market breadth broadens. The number of new 52-week lows is declining each week and there is far more volume (2:1) to the upside rather than the downside most days recently. Disappointing earnings are still being punished but not as they were a few months ago. He also points out that in recent weeks the AAII poll of individual investors has shown bullish investors at 25%, the lowest numbers in decades, a fabulous contrary indicator.

Eakle observes we are backing and filling as we carve out a nice rolling bottom as part of a long healing process for the markets. If you are waiting around for another great V bottom as in 2020, he expects it will never come.

Joan Lappin CFA has been called an “investment guru” by Business Week and a “top manager” by the Wall Street Journal. The Sarasota resident founded Gramercy Capital Management, a registered investment adviser, in 1986. Email JLappincfa@gmail.com. Follow her on twitter: @joanlappin. Her past columns appear at heraldtribune.com/business/columns.