Will A New Bear Market Happen?
Updated
There is an idea that a bear market is a 20% decline in the stock market. That is a simplification however, just like two negative quarters of GDP is a simplification of a recession.
A Bear market begins when the general long-term upward trend of the stock market is broken. With the Coronavirus crash, we merely saw a move from near the top of the uptrend channel to the near the bottom of the uptrend channel. For a real bear market to be in effect, with multiple levels of support to the downside getting broken, we not only would need to see a 20% or greater drop in stocks, but also a break of the uptrend channel lower bound.
The odds of that happening seem to be diminishing with every rally in the stock market today. But, will economic reality set in? Is this sweatpants led rally all that strong? Take a cue from the Money Flow Index. It trails the RSI. That is not a strong sign.
Regardless of whether the stock market enters a bear market or not, the signs of a short-term correction to the 2700s on the S&P 500 seem apparent. In that range, you will have to make a key decision to become more or less involved with stocks, as that is an area where we can see a new bigger rally begin, or a breakdown into a bear market that has a long way down potentially.
A Bear market begins when the general long-term upward trend of the stock market is broken. With the Coronavirus crash, we merely saw a move from near the top of the uptrend channel to the near the bottom of the uptrend channel. For a real bear market to be in effect, with multiple levels of support to the downside getting broken, we not only would need to see a 20% or greater drop in stocks, but also a break of the uptrend channel lower bound.
The odds of that happening seem to be diminishing with every rally in the stock market today. But, will economic reality set in? Is this sweatpants led rally all that strong? Take a cue from the Money Flow Index. It trails the RSI. That is not a strong sign.
Regardless of whether the stock market enters a bear market or not, the signs of a short-term correction to the 2700s on the S&P 500 seem apparent. In that range, you will have to make a key decision to become more or less involved with stocks, as that is an area where we can see a new bigger rally begin, or a breakdown into a bear market that has a long way down potentially.
Note
The next correction is closer today than in June. That's all you can say in an irrational liquidity leverage on leverage market. Can we see a last spike. For sure. I think it will come after a 10-20% pullback in the short-term. We can see SPY 400 in 2022. Entry around 300 seems appropriate, though could head to the 270-240 range if there are black swans.
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