Two the Point — A History of Bear Market Rallies

Market Insights in Two Minutes – With the stock market in rally mode as we closed out the month of May, the obvious question is – have we seen the bottom?  As we all know this question is impossible to answer without the benefit of hindsight, but historical context can orient us as to what is “normal” during bear market rallies. 
Using data back to the early 1960’s, we find that 1-to-2-month rallies of about 15% are very common when the S&P 500 is in a downtrend.  It is rare for bear market rallies to last more than 2 months, so market strength of that duration is often (not always) a good “all clear” sign. 
Recent market strength is certainly welcome, but it would be well within what is considered “normal” during a persistent downtrend.  There are also some typical momentum indicators that are curiously absent.
  • 5-day rate of change in the 99th percentile – hasn’t happened yet.
  • 80% of stocks above their 50-day moving average – hasn’t happened yet.
  • A day when 90% of stocks on the NYSE are up – hasn’t happened yet.
  • A spike in the % of stocks that make a 2-standard deviation daily advance – hasn’t happened yet.
Source: Strategas Research Partners