This is CNBC Senior Markets Commentator Mike Santoli’s daily blog with insights into market trends, stocks and statistics. The market continues to act as if large investors are feeling underexposed to equities, a logical place to pause or pull back – but with fictitious supply supporting the market near three-month highs. And, rightly so, there is a lot of trepidation among professionals that the market has gotten ahead of itself – which is sometimes another way of saying “I haven’t participated enough in the recent rise”. Skepticism is a net positive from a sentiment perspective. This means that there is likely to be more liquidity ready to re-enter the market, and the market will likely need to rise to locate aggressive sellers. That said, the S&P 500 is quite technically overbought, in terms of distance above its 50-day average and such. A 17% rally in two months is significant and several momentum/magnitude signals have been recorded, which tends to imply further upside in the coming months, but says less about the trajectory over days or weeks. The gains eclipsed the upper end of all post-1950 bear market rallies. Yet even though this is a new uptrend, the very strong market lows stemming from earlier growth/federal reserve fears since 2011 have seen things get a bit more choppy and sideways after this degree of rapid recovery. Here are the lows from 2011 and 2018, with the market area showing when the S&P gained 17% from a low like it has now. 2011 low 2018 low Key fundamental cautionary points are that equities never got cheap and valuation got full/rich again; the Fed still has a lot to do, especially after the easing of financial conditions this summer; and the economy has yet to register the impact of the tightening already in place, and we remain at best in “late cycle” mode with a high risk of recession. And yet, we have retailers leading the upside today thanks to better big box results than we expected. Valuation is a pretty poor indicator of short-term market performance (even up to a few years), but it helps dictate longer-term returns. Whether the S&P 500 at 18x forward earnings is reasonable or too high today depends entirely on whether growth continues – and inflation falls as hoped. It’s quite simple. The 16x equally-weighted S&P 500 has more of a cushion, showing that mega-cap growth leaders are still inflating the P/E index. There is merit here in all areas, although fair to say that most of these points also came after the fast and wide rallies from those other good lows (okay the Fed didn’t tighten in 2012 or 2019 but in 2012 we were there). Post-QE2 and QE3 only started at the end of the year with much higher stocks It’s a tricky mix of macroeconomic stress (global weakness, Chinese currency cracking) and relative resilience of the United States (high nominal growth, S&P earnings growing in the double digits) Seasonal factors soon become a bit difficult too, which is why there is a growing consensus that greater volatility and can -Being a retest of the low awaits in September/October.Healthy corporate buyout appetites its pushing the other way. The meme stocks continue to fly, with Bed Bath & Beyond well into the silly zone. That’s not a good sign, but it fits the “echo bubble” theme in which the risk/equity trends that peaked in early 2021 and crashed afterward get some relief. Still, it’s hard to berate people for repeating old mistakes when the cloud software and fintech groups look like this – the recent rebound has barely made a splash in the declines: market breadth is medium , a little better than 50:50. The Cboe Volatily Index VIX is asleep below 20, with the rotational action and moderate index moves draining juice from the hurdles on the downside.