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The 50% move in the S&P 500 has exhibited many of the characteristics of a secular bear market rally:

  • It has been on declining volume.
  • It has been very low quality in terms of asset gains.
  • There is very little real leadership outside of technology names.
  • And perhaps most importantly, the move has been very swift.

You’re probably asking yourself how a 6 month 50% move in the S&P 500 can be described as “swift”.  Well, you have to study the underlying characteristics of the actual rally.  Nearly all of this move occurred in two different multi-week spans.  The first of course, was followed by the March 9th bottom.  The short-term moving average in the chart below shows just how extreme the move was. Between March 9th and April 1st the market soared 27%.   Between April 1st and July 8th the market was up less than 5%.  But then, just before Q2 earnings the market once again shot higher by almost 15%.  If you weren’t invested in the market during these 6 (out of 20) weeks you barely covered your transaction costs!  Most importantly, readers of TPC were tipped off about both moves in advance (see here and here….)


Also alarming in this big move has been the volume.  There has been waning participation since the day the rally started.  The chart above shows the extreme decline in participation.

MarketWatch reports that recent volume is setting record lows.   Tony Cherniawski, chief investment officer at the Practical Investor LLC, a financial advisory firm says:

“In a normal breakout you get rising volume. In this case, we had rising volume for a while; then it really dropped off last week,” said Cherniawski, who ascribes the recent rise in equities to “a huge short-covering rally.”

Scott Marcouiller, senior equity-market strategist at Wells Fargo says:

“It’s simply a case of a tired stock market.”

Tired might not be far off.  With no volume confirmation, negative seasonal trends, no catalysts on the horizon and sentiment at bullish extremes the market just might be ripe for a big pull-back.  I continue to think the risks in this market are extremely elevated…..

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