Market Stalls, is the Bear Market Rally Over?

The comments below are an edited and abridged synopsis of an article by Lance Roberts

Is the bear market rally over? So far, most of it has played out exactly as expected by turning previous selling panic into a buying rush, and convincing a vast majority of investors that the bull market is back.

Market Stalls, is the Bear Market Rally Over? | BullionBuzz
Close up shot of bear and stethoscope. Bear market concept.

The market has rallied 27% from its lows after falling by 35%, so from sheer panic to unadulterated exuberance in four weeks. However, investors are still down 12% for the year.

Bear markets have three stages—sharp down, reflexive rebound and a drawn-out fundamental downtrend. They often start with a sharp and swift decline; after that, there is an oversold bounce that retraces a portion of that decline. The longer-term decline then continues as the fundamentals deteriorate. Dow Theory also suggests that bear markets consist of three down legs with reflexive rebounds in between.

As would be expected, the Phase 1 sell-off was brutal and set up the reflexive bounce. Many individuals feel that they are safe; this is how bear market rallies lure them back in, just before they are mauled again in Phase 3.

Up for discussion: the markets remain incredibly overbought; earnings estimates; the ingredients for a bull market are still missing; and the ranges remain.

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