Does Tuesday's Market Rally Mean Anything

Summary

  • When the market topped on February 19th, the dip-buyers were still in control and they have been buying all the way down. There were 7 consecutive down days from the 19th to the 28th of February, and the dip-buyers were there for all of them.
  • The problem is that the rally-sellers had more ammo and they overwhelmed the dip-buyers.
  • The S&P 500 is now down 25% from the high water mark it made on February 19th.

Tuesday was the 10th best day for the market since 1950

Investors' hopes have been restored. Well, kinda sorta, but not really. After a 12% market crash on Monday, a 6% rally seems like a half-ass recovery to me. We'll see if there's any follow-through tomorrow.

Another historic market rally today

We continue to rack up monster moves in this market and today was no exception. The 6% rally comes in at #10 on the all-time winners list. (Since 1950)

If you look closely at this table, you'll see that 7 out of 10 top rally days happened during the last bear market in 2008. 2 of the 10 happened within the last 3 trading days. The only stand-alone is from 1987. What does this tell you?

It tells me that the behavior of this market is among the rarest of the rare. And it will probably continue for weeks to come.

Dip-buyers' last stand got a mild reprieve today

This chart covers the period from January 2019 to today. You can see every dip, and the success of the dip-buyers all along the way. Up until recently, that is.

When the market topped on February 19th, the dip-buyers were still in control and they have been buying all the way down. There were 7 consecutive down days from the 19th to the 28th of February, and the dip-buyers were there for all of them. The problem is that the rally-sellers had more ammo and they overwhelmed the dip-buyers.

After the last remaining dip-buyers - whom I call the Sweet Doomed Angels - were crushed, the rally-sellers drove the market lower, to 2386, where it ended on Monday. The S&P 500 is now down 25% from the high water mark it made on February 19th.

Final thoughts

The dip-buyers will return one day, but for now they must settle for one-day-rallies like today. To gain back the upward momentum, the pandemic must show signs of subsiding and the recession must show signs of abating. That could take months, if not years.

Original Post

Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.

This article was written by

Erik Conley profile picture
10.13K Followers
A trading strategy uniquely combining fundamental and technical analysis.

Trader, analyst & portfolio manager, from 1975 - 2001. Former head of equity trading at Northern Trust Co. in Chicago. Now a private investor, founder of a nonprofit investor advocacy firm, and private investing coach.

It gives me great satisfaction to teach retail investors the same skills and strategies that I used with my high net worth clients as a private wealth manager. It may be a cliche, but giving something back to the community is more rewarding to me than helping very rich people get even richer.

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