The Bull market is dead! Long live the bull market!

According to – When the S&P’s weekly RSI momentum went from oversold to normal (>45), the S&P often struggled over the next 2-4 weeks. Many post-crash rallies are followed by some form of a pullback, so this makes sense. Even “normal” corrections (ie not crashes), such as those I’ve highlighted in the chart below  (2011 and 2015), experienced “RSI head fakes”. That is, a rally from an oversold RSI level, followed by a move back to around “50”, then a pullback.

No one would argue that we are entering into a recession, thanks to the COVID-19 virus. The chart below from Raymond James research shows us that markets have (in the past) taken at least 21 months to fully recover during such periods. Hopes of a neartermed rebound to the old highs set in February may be misplaced.

Bear Markets & US Recessions
PeakTroughPeak to Trough (Mths)ReturnTime to return to previous peak (Mths)Days to 20% recovery from trough
Average 18.8-43.6%56.774.8


Here’s a chart for the bears. The S&P 500 looks to be in an expanding formation. That’s not a good thing, given that it is considered a classic bear market pattern that can lead into further breakdown. So, we should watch and worry, particularly if the lower level (March 23rd’s low) of 2300 is broken to the downside…. although in my opinion, that is unlikely.  The washout in March was extreme, leading me to believe that we have seen the bottom in prices. And yet, it makes little sense for that low to be a “one and done” situation. More realistic is a re-test, or a test of just above that low point. That is, should the market follow the typical complex bottoming process.


Interesting to look at breadth lately. The Dow transports (black line) are NOT diverging against the industrial stocks. However, they are lagging, big time! Industrial have recovered over half of their losses since February. Transports have only recovered about 30% of their total losses. This indicates a weak recovery at best. Possibly a bearish signal.



Dow theory aside, many other breadth indicators that I watch, such as the NYSE New high/low indicator, and the various “percentage of stocks above their X-days moving averages” indicators are back to neutral. This implies that breadth, while not great, is not bearish anymore. Below is the updated chart showing the % of stocks above their 200 days SMA’s. As noted on my blog from April 7th, the indicator often confirms the end of a bear market when it moves through the 15%, then 20% barrier as I have noted (horizontal red lines) on the chart below. The SPX now has 26% of its stocks trading above their 200 day SMA’s. Not at all great breadth, but, per my notes on that blog, the recent increase of stocks above their 200 day SMA’s indicates that we may have seen the bottom (which could be retested…) of this selloff.


April is the best seasonal month of the year. Its actually been pretty much on that pattern, given the rebound this month after the March decimation. So…if you want to follow seasonal’s, along with the neartermed notes regarding momentum patterns per sentimentrader’s notes, or the historic tendency for markets to almost never “V-reverse”– you might want to think that we are in for another pullback come early spring. Breadth is improving. So any correction may not be long.

I’m in that camp of investors who are holding some cash (about 30% in our case) to take advantage of that potential.


  • Holding a good cash stash, and also a percent of gold producers.

    From a trading perspective, I am wondering, if a move down or a retest of lows whether, to continue to just hold the gold or sell here and re-buy if and when they go lower.

    I looked at the historical bears and or recession, as you used, to see if it would give up any correlations but was difficult to say from my inexperienced eye.

    Any thoughts?


    • Bruce–gold by itself is less attractive than the producers. It has resistance at $1800, and support at $1360 if you look at the longer termed (weekly) chart. So, I’m staying out of gold given that lousy risk/reward trade off. Not to say it cant go through $1800. But I’m not convinced it will.
      I have done correlation studies between gold vs. the USD, and gold vs SPX.
      My conclusions were that
      1. Gold is typically a good hedge (ie often negatively correlated) to the USD–here is a blog on that subject:

      2. Gold is NOT a good hedge against the SPX. Here is the blog on that subject:

      Producers have some ground to make up to fill the differential in gold bullion’s price. But that “catchup” might represent 10% or so (note the recent rally on the producers that has largely filled the prior differential). So, yes, gold stocks could have more upside than the bullion. But are they a stock market hedge…?

      Overall, I still view gold as a good addition to a portfolio, but I wouldn’t pile into either bullion or equity form. Its had a good run, and unless you are bearish on the USD (which you might be…) I’m questioning how much protection it will offer. Its anyone’s guess, but I do think it will return to its USD-hedging history vs. a stock market hedge going forward.

  • I started a practice portfolio in the beginning of 1999. By the end of that year, I had made a practice fortune. Clearly I was an investing genius!
    I went all in with our savings in January 2000. Two years later, I was sadder and wiser, having learned some hard lessons. They were expensive lessons, but I learned them.
    If you have the time, could you chart 2000-2002 S&P and 2008-2009. I seem to remember both had an intermediate head-fake, that could make an investor think the worst was over. It wasn’t. Someone said “History doesn’t repeat, but it rhymes.” I think it’s rhyming now.
    Stocks aren’t even cheap yet if you look at CAPE/Schiller data. I believe that we are in for a hard downward grind, as Q2 earnings and then Q3 (which will be worse) are released. Guidance will be worthless. Then we’ll have the US election and all hell will break loose. My port now consists of tightly stopped dividend stocks and index puts. I’m holding on for the summer and fall to come.


  • Thanks for those Keith,

    I’ve always remembered those sucker rallies, and that the S&P bottomed out at 666 on March 09, 2009.
    I wonder where it will hit this time – 1500?

    Maybe I’ll try to figure out a Coppock curve.



    • Bill–well, even a trained CMT like me can learn new things. I’d never heard of the coppock curve. So I explored it and learned that its basically a smoothed ROC indicator. For kicks and giggles, I applied it to a longer termed SPX chart. And you know what? Its a pretty good long termed trend change indicator! It caused a few whipsaws in the past bull market when viewed on a weekly chart–and its a bit slow on a monthly chart to trade effectively–so clearly the answer would be to try and optimize the look-back period (less than 14 on the monthly, more than 14 on a weekly chart?). I might have a go at it. Thanks for the idea!
      As for your sucker-rally observation, call it what you will, I do not think we are done with the bottoming process–the final low level of second or even a third washout is TBD. I wont guess that. I simply know that a one-and-done pattern is almost unheard of. But, stranger things have happened!

  • Used as intended, 11-month, 14-month with a 10-month weighted average, it’s pretty good as a bottom finder. Using weekly data as a trading guide is probably not a good idea.

    Add another indicator as a confirmation, and we might have something: say, 33% or more of the NYSE stocks at new lows, that’s a bottom. Russel 1000 maybe.



  • Hi Keith,

    Thanks for taking the time to write this 1-page blogs. Too many blogs out there that go on and on for pages and by the end, you can’t remember what you read.

    I trimmed another 10% of my SPX at 2800 yesterday. Even if it could continue higher, past crashes, as you pointed-out, have rarely been repaired as quickly. There’s also the action in banks (KRE, JMP, CM, BMO) that is not happy-looking. If it was to turn-around and double bottom (W-shape), I would hate myself for having been fooled, and would lose some “mental capital”!

    Most interesting to me right now is that energy companies, even the mid-caps (TOU, PEY), have stopped going down even if news are horrible, and some even reclaimed their 200 day moving averages, or, have moved up on good volume day after day. I wonder Keith…. could the Canadian government start buying energy shares, similar to what the U.S government did during the crisis?

    It would be hard to believe, considering Trudeau wants to invest in green energy and has already stacked 200 billion of stimulus debt. Unless Morneau sells it like this: “If we don’t save our energy industry, we will be buying oil from the U.S anyways, but also lose Alberta jobs, so instead, we are becoming part-owners and will force companies to become greener”.


    • Matt–your final point about Cdn govt buying oil companies–very interesting perspective. Cant really offer insight there, but sure, we are copycats to the USA so, why not? And yes, producers are stabilizing.
      I’d recommend you get our newsletter (if you dont already)–if you do, have a read of the one we sent out yesterday. I noted some points by market whiz-bang, Larry McDondald. He is bullish oil after the neartermed volatility ends–he has a few points that I relayed on the letter regarding that stance.


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