Market Rallies Since the Start of the Credit Crisis

Since the onset of the credit crisis last Summer, the S&P 500 has now had four rallies of more than 5% (using closing prices), which are highlighted in the chart below.

Many investors believe that the market has a different and more positive feel during the current rally, and when we compare it to the prior two rallies, they have a point. Prior to this run, the S&P had two rallies that lasted two weeks or less. With the current rally continuing on for more than thirty trading days, things should feel different.

However, before we all call an official end to the market's declines, we would note that from last August through October, the S&P 500 rallied by more than 11% over a 38-day period. The current rally, on the other hand, has shown a gain of 9.77% over a 33-day period. Until this rally shows that it has more staying power (in time and/or magnitude) than any of the prior head-fakes, investors should continue to keep a cautious stance, and keep tight stops on their short-term positions.

With a flood of economic and earnings reports, an overbought market, as well as a Fed meeting which could set the stage for a pause in rates, the reaction to this week's news will tell a lot about the market's health.

Comments

[BrucePile]

The current rally is impressive. And it's made more convincing by the fact that the lead group that led the turn into the decline, the retailers (RLX index) , has broken the resistance downtrend line obeyed for months. Maybe that's just a one week dumb money move fomented by the stimulus checks going out. The other major indexes are not showing such a technical change from bear mode just yet.

[Kunst]

This one's just about over.

[karchad]

it's 1990 all over again. a short and sharp decline. Led by housing and financials. plenty of doomsdayers. i remember 2 people running around my office saying "sell all your stock". They picked the low of the market to the exact day!

[horse_sense]

In 1990 we had no 1) Iraq war 2) Sub-Prime fiasco 3) Record debts by individuals & the government 4) No competition from Chinese manufacturing.

It is different this time.