Looks like this rally has ended.
The S&P 500 has run into the downward sloping trnedline set by the 2015 top. It has since rolled over. We’re likely heading down in a big way.
Investors forget, the sharpest, most aggressive rallies occur during bear markets. This is because bear market rallies are driven by short-covering: those investors who went short are forced to “cover” or buy back shares they have sold previously.
Consider the Tech Bubble.
Once the top was in, stocks stage SIX separate rallies ranging in size from 15% to 27%. And ALL of these massive moves took place in roughly than one year’s time.
That’s six double-digit rallies, some of which lasted as long as two months… but all of which ended in stocks making new lows.
Virtually the same thing happened after the 2007 top, with stocks staging four significant rallies ranging from 7% to 12.5% as they ground their way lower going into the Crash.
Even after the Crash hit, we had a monster 25% rally that lasted two months!
My point with all of this is that sharp rallies occur during bear markets after major market peaks are formed. I suspect this latest rally will prove to be yet another example as stocks roll over and head to new lows.
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