Extreme volatility and panic buying are typically associated with bear markets. In the examples below, all the gains were retraced. We posted these charts in the past, but they are worth another look.
If you are reading this analysis when the S&P 500 is experiencing a monster rally, keep the three historical rallies below in the back of your mind:
The three rallies above occurred in the context of a bear market. If the current market can rally and the S&P 500’s 200-day moving average can turn back up, then we would be more willing to push our bear market concerns aside. But a rally that occurs with a downward sloping 200-day moving average, even a big rally, should be viewed with a dose of skepticism.
The charts of the three rallies above illustrate two important points about bear markets:
- Volatility picks up
- Sharp rallies are common