Bear Market Rally

Markets can go up, down, or sideways. And they will do so consistently. When I look at the markets I like to have three different time frames in mind. The time frames are: Long term, Intermediate term, and Short term. These time frames correspond to Monthly, Weekly, and Daily charts of the market. And I also like to look at the 4 hour chart as well as it can give me an indication of a trend change before any of the other time frames do.

Markets are either bull or bear. It is said that the bulls make money and the bears make money but the pigs get slaughtered. Wall Street was actually named for a wall that was put up to keep the wild pigs out, or so I have been told. At any rate for me the 12 moving average is my wall. If the closing monthly price is above the 12 moving average it is a bull market, otherwise it is a bear. The S&P 500 closed below the 12 MA in December 2007 and is still below it.

There is the trend and the bounce in a bear market. The trend is longer term and is what we refer to as the bear. The bounce is shorter term and is called a bear market rally. Just like a ball that is bounced against the floor, a bounce in the stock market does not go as high as where it came from. Typically bounces range from 40 to 60 percent of the previous move down. They are sometimes referred to as “sucker rallies” as they suck people in before turning the other way. I am looking at a high of 1320 to 1345 in the S&P 500 and then a downturn to a retest of the July lows. Since no one knows the future, myself included, this is just my best guess. We will just have to wait and see.