Last week, the S&P 500 (SPY  ) successfully re-tested the mid-June lows around 3,630. Essentially, the index broke below this level for a few hours which led to a huge surge in volume as many traders were anticipating a break and continued decline.

However, the market quickly rallied from these levels. Many bulls saw it as a double bottom that could lead to a meatier bear market rally or even herald the start of a new bear market. Other more bearish or skeptical traders believed that the equity strength was more a reflection of the start of a new quarter and new month that typically sees inflows from passive investors and many stock/bond funds. These flows are certainly more potent in a volatile, oversold market with large amounts of short interest.

In hindsight, it's clear that the latter group was correct as the stock market quickly gave back these gains and decisively broke below 3,600. One factor in the market weakness is the continued turmoil in the U.K. over the plunging pound and gilts which is putting pressure on pension funds. These issues were exacerbated as the Bank of England's (BOE) quantitative easing (QE) program is set to expire in a couple of days.

And, it got even worse when a BOE official signaled to pension funds that they had a limited window to complete their sales. However, these comments were quickly walked back by officials.

Still, the issues faced by the U.K. are similar to what the rest of the world (ROW) is facing to a similar degree. Costs of basics like food and electricity have skyrocketed. Central banks are responding with higher rates which are leading to slower economic growth and even potentially pushing the economy into a recession. This is causing pain for many people.

However, other parts of the economy are weakening at a much more rapid pace than deteriorating in rents, electricity, or food prices. And, there's the natural instinct by politicians to supply fiscal relief during the crisis, even if this undermines the central banks' goal of fighting inflation.

Therefore, until we see inflation meaningfully turn lower, it's likely that these oversold bounces or bear market rallies roll over to new lows.