When stocks rocketed higher out of a selloff in the fall of 2011, buyers pushed the S&P 500 more than 7% above its 50-day moving average. It hasn't been that far above its medium-term average in the nearly 9 years since, until Friday.
The biggest difference between that time period and the current one is that the October 2011 rally also pushed the S&P above its long-term 200-day average. This time, stocks declined enough that even with the rally, the S&P is still trading below its 200-day.
When stocks have rebounded so much during a long-term downtrend, returns over the coming weeks and months are more fraught than if the long-term environment was more positive. And whether investors have enough oomph to keep pushing stocks higher in the coming week(s) will signify whether this is more likely the kick-off of a new bull market, or just a bear market rally.
Below, we can see the S&P's forward returns if the first week following these signals was negative.
Only once did this lack of buying interest reverse itself over the next 3 months. Something to keep in mind depending on how the next week goes.
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We also looked at:
- A more detailed look at how stocks perform after these 50/200-day divergences
- The Cumulative Advance/Decline Line hasn't bounced nearly as much as the S&P 500
- The Nasdaq has rallied for 6 straight days - what that means for the broader market
- Our Optimism Index on QQQ is the highest in almost a decade
- Mutual fund timers are piling into Rydex funds
- The equal-weight S&P 500 can't keep up with the cap-weight version
- Internet stocks have skyrocketed
- What happens when the Nasdaq 100 is up more than 40% over 7 weeks
The post titled What happens when stocks soar during a bear market was originally published as on SentimenTrader.com on 2020-05-12.
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