Did you miss it? Probably not, but that bear market rally came in like a hurricane through the first four months of 2019 and nearly broke all the bears in the process. The markets rallied some 25% or so from Xmas eve lows to the all time highs tagged on May 1. Yet, as we have seen now through the month of May, much of the progress made by the bulls is being blown to the wind.
The bulls came close, but could not quite make the turn. At the end of each month we view the monthly chart of markets and compare the MACD. It's a simple analysis, and we see if there is a crossover of the moving averages that warrants a change in the bigger trend. Since October 2018 the markets have been in a bearish state.
That is right, even with the big rally in the first part of this year, the bears have still led the trend. Seems amazing, I know. But throughout history some of the strongest rallies have occurred during bear markets. The longest ones serve best to fool everyone into thinking the bear market is over.
That is probably what happened this time as well. We mostly heard positive news from the Fed, the economy, the trade war front and the technical condition had improved sharply from a dismal fourth quarter of 2018. With strong money flows, improved charts, decent earnings (beating estimates in Q1) and strong economic growth (3.1% in Q1), why wouldn't one be long equities?
Further, bonds and other alternatives were strong but lower yields were not a problem nor a competitor for stocks. It seemed Goldilocks was back on Wall Street, until she disappeared once again into the night.
Does that mean we are going down to test the December lows? Sure, anything can happen in a 600 point range. It may seem like a bear market or a bull market once again.
The point here is this: Pay attention to the overall trend, it will guide you to the best direction. Use the longer term charts to help you determine the proper mindset as you go about your trading. There will be big rallies, there will be huge declines. Be at your best when you have the information at hand and can objectively interpret it.