Trading Bear Market Rallies

Well, it finally happened – the infamous Bear Market rally decided to grace us with its presence. It usually occurs when sentiment gets so bleak, the put/call ratio gets so high, and it seems nothing can save that market that it will quickly shift higher, catching bears in its trap. In the stock market, especially in a bear market, it’s generally around the time that at least a short-term low can be put in.  The questions that arise afterward, however, are usually the same. 

For so long I was running analyses to determine, “How low could it go?” However, now that a sustainable bounce has occurred, the question shifts to, “How long could the bounce last?” Better yet, some are already asking, “Are the lows for the year in?” 

If you’ve been following along with my work this year, you’ll know that I’ve been about as bearish as bearish can be. During my webinar last week, I discussed the varying reasons why, but that doesn’t mean that just because a short-term low has actually held that it means the entire direction of the market has shifted. However, it does mean that there is, for the first time in a while, there is some new opportunity on the long side. 

But, just because there are a few opportunities to the upside, doesn’t mean the low for the year is in!

Check out the chart below:

S&P Futures – Daily Chart 5.30.22

S&P Downtrend

Click on the image to enlarge.

The S&P has been in a downtrend all year, and while it bounced over the past week, it still has significant overhead resistance to breach before shifting trends again.

As you can see on the chart above, the S&P futures have bounced off of 3800, and this bounce has been a bit stronger than the last three bounces the indexes have experienced. This move, in addition to the shifting volume, momentum, and trend to the upside, does suggest it could hold, at least for a bit. The real question is what happens when the indexes begin to hit resistance, which they aren’t far from at this juncture. 

Are you trading the short squeeze higher? Join me on Wednesday, June 1st where I’ll be teaching my favorite methods to identify and jump on rips off of the lows, and the best methods to come in and short losing companies! Click here to sign up

But, in great news, due to the high volatility, and rapid moves happening to the upside, even if it’s not a sustainable low, we can still trade it! While of course, I am bearish and have been bearish almost all year, I have regularly noted the likelihood of a short squeeze giving traders a surprise move to the upside. These surprise moves provide not just some upside opportunity, but also some opportunity to come in and look for relative weakness losers to short again.

Due to the rate at which the market has fallen, it’s been challenging to short anything at a reasonable level. But, after this move, that situation has changed! With all of the volatility in the market, this is a great time to focus on trading.

For the most up-to-date market analysis, trading tips, and focuses, join me on Wednesday to learn more!


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