U.S. stock market switched to bullish from bearish too quickly



Benchmark indexes have recouped half their losses in a little over three weeks — perhaps too fast.

The S&P 500 Index, since its Dec. 24 low at 2,351 points, has rallied 13%. In fact, the S&P 500, Dow Jones Industrial Average, and Nasdaq have recovered about half of last year’s losses. Does this mean the bear market is over?

The weight of evidence suggests yes, but there is one caveat.

In December, the S&P 500 tagged the 48-month SMA (simple moving average), a level that’s ended a number of bear markets. The S&P 500 also reached (and exceeded) the average “bear market target.” This target is based on the trajectory of the past 10 bear markets.

Ironically, bear markets tend to end right about when most people think it started. This one may have been no different.

Historically — dating to 1950 — the S&P 500 drops about 20% in the mid-term election year, which is what happened in 2018, a mid-term election year. Based on the same historical data, the S&P 500 rallies, on average, 50% from the mid-term election year (2018) to the pre-election year (2019) high.

Source: MarketWatch

 Trader Georgi Bozhidarov

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