There is a raging debate on Wall Street whether or not the advance since October is another bear market rally or the beginning of a new bull market. While this is a deep and complicated question that deserves its own investigation, most investors and Wall Street analysts continue to see this as a bear market rally based on surveys, positioning, and fund flows.

Throughout this bear market which began in earnest in January 2022 (although there were signs of deterioration in many parts of the market since the early months of 2021), we've experienced a variety of bear market rallies that inevitably rolled over.

In terms of market structure purposes, these brief, interim periods of strength serve to punish greedy short sellers, turn market sentiment from bearish to neutral on a longer-term basis, and bearish to bullish on shorter timeframes. Often, stocks with high levels of short interest will see extraordinary moves higher that don't meaningfully change the trend given their huge losses but are quite impressive on an absolute basis.

These 'short squeezes' tend to happen when there is a huge wave of liquidity that comes into the markets. In essence, this is money that indiscriminately flows into the market and lifts all boats higher, regardless of fundamentals. Sometimes, the most fundamentally weak stocks will see the biggest advances, simply because they are the most oversold and have the highest levels of short positioning.

One way to see these 'liquidity-fueled squeezes' is by examining the McClellan Oscillator Index which is an approximation of market liquidity. Currently, the reading is over 80 which has been only reached a handful of times over the past year. All of these instances were accompanied by short squeezes.

In the current market, we have seen some incredible advances from companies like Bed Bath & Beyond (BBBY  ) which climbed from $1.27 to over $6, despite the company filing for bankruptcy and its credit trading at levels that indicate an extremely high probability that equity holders will be wiped out. Clearly, there is no fundamental justification, and it only makes sense from a liquidity perspective.

Another example is Carvana (CVNA  ) which climbed from under $3 to over $8. Carvana's outlook is also bleak as the company is cash flow negative and rapidly running out of cash. Additionally, the macro environment is deteriorating for car sales. Some sort of restructuring or share dilution seems likely which is inconsistent with such strength in the stock.

Carvana and Bed Bath & Beyond's price action is a clear indication of the current market dynamics. If the bear market remains intact, it's a sign that the bear market rally is in its final innings.