Bear Market Rally Continues

Good Morning. The market is now overbought but will not be maximum overbought until Monday. Additionally, the market is up against resistance but the heavy resistance does not come in to play until the S&P 500 reaches the 800 level. I am not interested in trying to catch the last part of this rally as I believe it is better to leave too early than too late.

I spoke about the three phases of a bear market rally yesterday. I believe we are very close to the end of the first phase, which is the initial powerful rally. The second phase is the corrective phase. I will look to do some buying during the corrective phase because phase three is the culminating rally.

As an aside, it is interesting to note that almost everyone believes this is a bear market rally, including those who are participating in it. As long as the rally sucks people in I am not sure the distinction matters but it is interesting to note none the less.

3 comments:

Lars said...

I think your are right, but what happens after phase 3? Do we ride much lower until year end?
Is all the Gov't intervention helping or delaying a meaningful recovery in your opinion?

They seem to be jousting at windmills.
Reminds me of Don Quixote:
"Fortune is guiding our affairs better than we ourselves could have wished. Do you see over yonder, friend Sancho, thirty or forty hulking giants? I intend to do battle with them and slay them. With their spoils we shall begin to be rich for this is a righteous war and the removal of so foul a brood from off the face of the earth is a service God will bless."

Tsachy Mishal said...

Lars,

I answered your question as a post

FastFreddy said...

What happens after phase 3 is that the reality sinks in of future earnings in the 50-60 range for the SP500, for many years to come. Given all the carnage recently, risk premiums have risen, so multiples should be closer to 10 than 20, let's say 13. 13 times 60 gives a price of 780, and this is being optimistic. Use a multiple of 12 times 50 and you get 600. These are the target buy points for the smart money. So when the smart money sees the bull stall, they get their money out and pretty soon we have another selling stampede. The fools who bought in as we approached the top panic and sell as we approach the next bottom. Some of these fools lose all further appetite for risk, which means further rallies will be less intense. The fact that not all the fools drop out means we'll see a few more of these bear market rallies before the final bottom. And that final bottom, I am more and more convinced, will not be 600. On the contrary, after the smart money buys in heavily near 600, the market will dips down a lot lower, to test the nerves of this supposeded smart money and see just how smart they are. So the final dip should be under 500, though this is purely conjecture. I'd definitely advise keeping some dry powder around until at least 550.