The S & P 500 Index has risen 13% from its December 24 low of 2,351 points.
In fact, the S & P is 500
SPX, + 1.05%
Dow Jones Industrial Average
DJIA, + 1.10%
COMP, + 0.81%
around half of last year's losses recovered. Does that mean that the bear market is over?
The weight of the evidence indicates yes, but there is a caveat.
In December, the S & P 500 marked the 48-month SMA (Simple Moving Average), a level that ended a series of bear markets. (See this MarketWatch article for more details.)
The S & P 500 also reached (and surpassed) the average bear market target. This objective is based on the evolution of the past 10 bear markets (as defined by Ned Davis Research).
The graph below (originally published in the Profit Radar report of December 19) shows the S & P 500 versus the average bear market.
Ironically, the bear markets end just when most people think it started. This can not be otherwise, as the headlines below show:
• CNBC: "We are now in a bear market" - December 24th
• Yahoo! Finance: "S & P 500 invades the bear market" - 24th December
• Investors Business Daily: "S & P 500 enters the bear market" - 24th December
In the past - dating back to 1950 - the S & P 500 fell by about 20% in the interim election year, which was 2018, a year of interim election.
Based on the same historical data, the S & P 500 recovered on average by 50% from the election year (2018) to the high for the year (2019).
The year before the election is the year with the best election periods. The S & P 500 season chart below shows the average performance of the S & P 500 in the years leading up to the elections and each year.
On December 26 and January 4, 87% and 91% of the NYSE traded shares, respectively, rose. This type of "Breitenschub" has occurred only five times since 1985 and was bullish four to five times. For a more detailed explanation, see this MarketWatch column.
The S & P 500 recovered more than half of its previous bear market loss in just 17 days. This is one of the fastest recoveries in history and generally leads to short-term weakness.
In January / February 2016, the S & P 500 also recovered from the 48-month SMA and enjoyed a boost in width, but again tested the original panic low before going up.
With no bullish divergence in December low, equities rallied this low (as in 2016) to trigger a bullish divergence before continuing to rise.
The weight of the evidence indicates that the bear market is over, but the hunt price at this time carries a heightened risk. A "buy the dip" approach seems appropriate. The break should be at least 100 points, but could be as much as 300 points.
A more detailed technical analysis for the S & P 500 can be found here.
Simon Maierhofer is the founder of iSPYETF and publisher of the Profit Radar Report.