From the bottom to the top, the chart below (click to enlarge) shows a rally of 9.3% in about a month. That is an old chart with the date removed.
The current rally is a little over 10% from the low in mid-March.
The rally charted felt pretty good. The rally now feels pretty good.
A while back I started using the term feel-good rally (I may have made it up, not sure if I can take credit for it or not). The context for saying that is, if the market is in the bear that I think it is, we will have several feel-good rallies along the way.
Feel-good rallies are a normal part of the bear market landscape. This is either a run-of-the-mill feel-good rally or I am wrong and this whole financial crisis/housing price deflation/bond market distortion will turn out to be nowhere near as important as many people thought.
What do you think is more likely?
I am convinced this is a bear market rally, there is no convincing me otherwise. That does not guarantee I will be right, of course. I think what I think, but regardless of what I think, I will add a name or two or shave off some double short if the S&P 500 goes back above its 200 DMA. For me, re-equitizing would be gradual because it could obviously go above the 200 DMA for a few days and then go back under making for a real fakeout.
In the past some have posited that the 50 DMA crossing over the 200 DMA in either direction might be a more accurate trigger point for getting defensive or re-equitizing, depending on the direction. That might indeed be a better way to go. For this cycle I will stick with 200 DMA and between the end of the current bear, regardless of when that is, and the start of the next bear market I'll try to figure out if I think the crossover is the better mousetrap.
The bigger macro for me is having an objective point where to go on defense and then a point where to re-equitize. The goal has been simply to miss a big chunk of down a lot. If the specific tactic turns out to be the best strategy that's great but it far from the priority.
By the way, the chart covers the first quarter of 2002. The S&P 500 was about 34% lower four months later.