There Will Be Rallies

The selling in stocks lately has been exhausting. Every attempt at a rally is met with selling and eventually a new low is made. This is what happens in a bear market.

But, there can be big countertrend rallies in bear markets as the downtrend in stocks plays out. We had one of these rallies back in March where the NASDAQ 100 went up by 17% in less than three weeks.

And then what happened? Well, the downtrend resumed after sucking in as many bottom pickers as possible.

Those new to trading over the last couple of years have gotten used to buying the dip and watching small pullbacks or corrections quickly move on to new highs. In a bear market, the exact opposite happens. 

Take a look at some of the monster rallies the last time we saw the air come out of an extremely inflated market. The tech bust of 2000.

From the 2000 high to the low in October 2002 there were four rallies of 25% or more with two of them being around 50%! I bet there were a ton of bottom callers on every one of these rallies.

The point I'm trying to make is that no one knows where and how we bottom until well after the fact.

Right now we are in a downtrend when it comes to tech and growth stocks but with sentiment continuing to lean bearish we could be getting close to a counter-trend rally. 

Maybe tomorrow's CPI Inflation data will provide the catalyst if investors like what they see.  

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Nothing in this blog post should be considered investment advice and is provided for educational and entertainment purposes only. The commentary and information represent the opinion of the author and are not recommendations to buy or sell any security or investment product. The author may or may not hold positions in the securities and investments mentioned. Full disclaimer here.