The market rallied sharply yesterday. Was that the end of the bear market?
I don’t think so. Instead, I think it is what is called a dead cat bounce. Let’s break it down.
Note how the market was accelerating to the downside as we went through the week of December 17. It culminated with a sharp down day on Friday on extremely high volume. This was followed on Monday with another sharp down day but on small volume. (Of course volume was light on Monday because it was the day before Christmas.)
I believe that Friday/Monday was what is called a capitulation bottom. That is formed when the bulls capitulate and give up being bullish. That is actually bullish because it means there are no more people left to sell.
But does that mean the bear market is over? No.
It simply means that we are going to rally over the near term. I would look for a rally back up to as high as 2600 on the S&P. At that point I will assume the bear market will resume.
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