Bear Market Rally?

Bear Market Rally?

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What Do We Call It? A Bear Market Rally

Lots of talk and excitement about this recent rally. Impressive by most standards: two 90% breadth/volume days, two moves of 4% or higher in a short timeframe, nearly 10% gains on the week. Further, the financials finally 'woke up' and kickstarted the rally on Thursday and did not relent. All good stuff, right? Let's hold off the bull parties for a bit. Sentiment continues to auger a short term overbought status (more on that below). Likewise, names have surged anywhere from 50% to even 100% in some cases. Certainly it would be expected some profit-taking will be happening...soon. If there is one thing this bear market has taught us it's to be quick and flexible.

The Market is Feeling It

While the fundamentals are difficult to manage at this time, sometimes the technicals don't offer much, either. Look at a series of charts from different sectors it's quite apparent that trends are down, and this could be a 'rest' until the next down leg starts. But, are there really good setups? Charts are a mess and don't give a great indication either way. At best there are retests and at worst they are neutral...not to my liking as a momentum trader. Sentiment tells a much different story. I'm a big follower of sentiment especially in these times. Uncertainty, cloudiness, and lack of visibility make timeframes much shorter. The VIX has been portraying a lack of fear or complacency. Also, the equity put/call reading shows some very low readings as well, almost too low. Frankly, traders have positioned themselves to 'catch the bottom', and it could have been made last week. That's not a bet that has a great payoff. Bull markets do not start from such levels of enthusiasm.

The Numbers Game

Let's dive in and do some numerology for fun. The low last week was 666 on the SPX, which tells us the bear is the devil (or vice versa). While this level may hold here for now, I fully expect a retest at best and failure at worst. Volume numbers are decent but nothing too strong here. The VIX hovering around 40 is definitely something to consider but Friday it held above the 200 MA once again. A number watched on Friday on the SPX was 741, or the low from Nov 21. That'll be a number to be watched next week as Mar 20 marks exactly four months since that prior low was put in. Finally, the SPX put in its first weekly close in the last six, interestingly enough the index has not had two consecutive weekly up closes since mid Aug 2008, just before the decline ensued.

Bob Lang,
BigTrends.com

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