There were a slew of headlines Thursday night declaring that the DJIA was back in a "bull market" because it had bounced more than 20% off its recent lows. That is eye-catching following the collapse that has occurred over the past month or so but it is misleading and may give a sense of comfort that is not warranted.
As I've been discussing, this is most likely a countertrend or relief bounce within a bear market. However, because of the magnitude of the moves and the emotion involved it is harder to appreciate this thinking. If you move the decimal place in the DJIA over three places and think of it as a stock that closed last night at $22.50, it looks a bit different. This is a stock that has fallen from $29.50 to $18.60 and then bounced back to $22.50.
While that is a high level of volatility, it is not that uncommon to see individual stocks make moves of that sort. A 20% bounce in a stock off the lows is quite routine, yet the chart would still be considered "broken."
Another issue in the case of the DJIA is that a very large percentage of the gain was due to Boeing (BA) . The DJIA is "price-weighted," which means that a higher-priced stock such as Boeing is given more weight. Most professionals use the S&P500 as a benchmark because it is constructed with weightings based on market capitalization, which makes more sense.
The point here is that the bounce in the DJIA has not produced the shortest bear market in history and a new bull market. It is just fairly normal volatility that can occur in a bear market. Bear markets tend to be far more volatile than bull markets because emotions are so much stronger.
It is important to keep perspective and not overreact to 1,000-point moves in the DJIA. If you apply a different scale, it is no different than a high-beta individual stock and can be traded in a similar manner.
The indices have already given back a big chunk of Thursday's gains and now the question is whether they can find support before testing recent lows. The big problem continues to be the news flow and the uncertainty about the coronavirus and economic damage, although market players are hopeful that a $6 trillion in rescue funds will act as support sooner rather than later.
Worries about coronavirus headlines over the weekend may keep buyers sidelined and I have no interest in looking for much upside bounce Friday.