The Bear Market Is Over. Or, Is It Just Hibernating?

The bear market is over. While that statement fills the mainstream media, it remains a hotly debated question in every media forum. It is an interesting point considering that it was just in June we were answering the question of “when will this bear market end?”

“Bear markets are not uncommon and follow preceding bull market excesses. Over the last 120 years, there have been 14-bear markets that averaged roughly a 33% decline from peak to trough.”

bear market is over, The Bear Market Is Over. Or, Is It Just Hibernating?

It only took a 50% retracement rally from the lows in July to get the bulls declaring the bull market is over. As I discussed in May, such was not surprising, stating that“investor sentiment was so bearish, it’s bullish.”

“As Bob Farrell’s rule number-9 states:

‘When all the experts and forecasts agree – something else is going to happen.’

As a contrarian investor, excesses get built by everyone being on the same side of the trade. Currently, everyone is so bearish that the reflexive trade will be rapid when the shift in sentiment occurs.

The takeaway from this commentary is not to let media headlines, financial narratives, or concerns over long-term issues like valuations, economics, or geopolitical events impact the decision-making process in your portfolio strategy.

There are plenty of reasons to be very concerned about the market over the next few months. However, markets can often defy logic in the short term despite the apparent weight of evidence to the contrary.

With everyone back in the bullish camp, such would suggest the risk/reward balances have flip-flopped.

But is that case? The short-term technical backdrop does support that view.

Technically Speaking – The Bull Market Is On.

From a technical perspective, a rising bed of evidence supports the “bear market is over” claims. One such bit of evidence comes from Ryan Detrick, CMT, who recently stated:

“Friday triggered a rare, but quite bullish signal. More than 90% of the components in the S&P 500 are now above their 50-day moving average. As you can see, these signals take place in strong uptrends historically.”

bear market is over, The Bear Market Is Over. Or, Is It Just Hibernating?

However, it is just the number of stocks above the 50-dma but also the market itself technically performing better. As noted above, an important indicator is a 50% decline retracement. When stocks have historically accomplished such a reversal, markets performed better over the next 12 months.