US stock market has switched to bullish from bearish too fast

The S & P 500 index, since December 24, at 2,351 points, has gone 13%.

In fact, S & P is 500

SPX, + 1.09%

Dow Jones Industrial Average

DJIA, + 1.15%

and Nasdaq

COMP, + 0.85%

has recovered about half of last year's loss. Does this mean that the bear market is over?

The weight of evidence suggests yes, but it is a warning.

In December, the S & P 500 marked 48-month SMA (single moving average), a level that ended a number of bear markets. (More details are available in this MarketWatch article.)

S & P 500 has also reached (and exceeded) the average "bear market target." This goal is based on orbit from the last 1[ads1]0 bear market (as defined by Ned Davis Research).

The table below (originally published in the 19th Dec merit date report) draws S & P 500 towards the average bear market path.

Ironically, carrier markets tend to end up when most people think it started. This may have been different, as the headings below show:

• CNBC: "We are now on a bear market" – 24 December

• Yahoo! Finance: "S & P 500 Includes Bear Market" – December 24

• Investors Business Daily: "S & P 500 Includes Bear Market" – December 24

Seasonality

Historically – Dating to 1950 – S & P 500 fall about 20% in the mid-term election year, as happened in 2018, a mid-term election year.

Based on the same historical data, S & P 500 collects an average of 50% from the mid-term election year (2018) to the pre-election year (2019) high.

The management year is the most effective year in the election year cycles. The S & P 500 seasonal chart, below, shows the average performance of the S&P 500 during the year and year.

Width

26. December and January 4, 87% and 91% of NYSE traded shares advanced, respectively. This type of "spread" has occurred only five times since 1985, and was bullish four to five times. A more detailed explanation is available in this MarketWatch column.

Caveat

S & P 500 recovered more than half of the former carrier market loss in just 17 days. It is one of the fastest recoveries in history, and generally leads to a short-lived weakness.

In January / February 2016, S & P 500 also jumped from the 48-month SMA and had a latitude, but tried the original panic low before moving higher.

Since there was no bullish divergence at December, stocks could retreat the low (as in 2016), to distinguish a bullish divergence before moving higher.

Summary

The weight of evidence suggests that the bear market is over, but the pursuit of this point comes with increased risk. A "buy dip" approach seems appropriate. The depth should be at least 100 points, but can be as much as 300 points.

A more detailed technical analysis for the S & P 500 is available here.

Simon Maierhofer is the founder of iSPYETF and publisher of the Profit Trader Report.