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When Will This Bear Market Rally Finish and the Subsequent Leg Down Start? – Funding Watch

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Yesterday we put this recent stock market rally in the context of historical bear market rallies.

By quick way of review.

  1. It is extremely common for stocks to rally, and sometimes by quite a lot and for as long as two months, during a secular bear market.
  • During the Tech Crash, the S&P 500 experienced four rallies, ranging from 10% to 25%, and lasting two weeks up to 2.5 months.
  • During the Housing Crash, the S&P 500 experienced four rallies, ranging from 10% to 15% and lasting one to two months each.

In this context, the current rally in stocks is 9 weeks old (a little over two months) and has seen the S&P 500 rally some 17%.


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This begs the question… if this is indeed a bear market rally… when will it end? Put another way, when does the next leg down begin?

Historically, the 40-week moving average (the same as the 200-day moving average) has been a line of GREAT significance during bear markets. During the Tech Crash, the S&P 500 was never able to break above this and stay there.

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A similar dynamic played out during the Housing Crash. Here again, the S&P 500 was unable to reclaim the 200-DMA/40-WMA.

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So where are stocks trading today in relation to this line?

The S&P 500 is just about to test its 200-DMA/40-WMA. If history is any guide, it won’t be able to reclaim this line and stocks will begin their next leg down in the next few weeks.

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