I’ll keep this brief.
The U.S. equity market has been seeing large countertrends higher within the construct of the -now- bear market, each failing to do more than simply fill prior gap-down from prior days. Each rally that’s attempted to get started begins to fade when any tiny sign of supply via prior short-term price ‘memory’ is reached. This has been the theme for the last month as you can see from the chart below.
Some investors may get excited by the single day performance, the record-setting Dow moves, and the double-digit advances in stocks that are still bleeding from being cut in half in just a handful of trading days. Unfortunately, these moves are not indicative of trend changes and can be found in history during the ‘meat’ of a bear market, not at the tail-end of down trend. I tweeted on Tuesday that since 1950 when the S&P 500 has rallied 8+% were during 2008, ’87, and earlier this month – none of which were just before or right after a final low in stocks. Going back to 1900 for the Dow and looking at 10+% advances (similar to yesterday’s advance) and again we see they occurred in brief counter-trend bear market rallies.
I’ve written in my Thrasher Analytics letter the specific developments I’d like to see to gain confidence in a final low is in place or nearby. My focus is squarely on the breadth of the market and volatility. I’m not concerned with momentum at this point, momentum can be a sneaky devil during substantial down turns, the math behind the indicators can give a false confidence when used incorrectly. From a price perspective, this trend in the chart below needs to break. We need to see rallies not fail and price to show strength when approaching potential resistance, not retreat.
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