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New Bull or the Same Bear?

From its all-time high of 2/19/20 SPX has plummeted 1,201.66 points to a low of 2,191.86 (3/23/20) losing 35.41% of its value in 23 trading days. This met the text-book definition for a bear market decline.


As quickly as it fell, SPX has now rallied sharply higher from the 3/23/20 bottom gaining 1,088.13 or 49.64% over the past 89 trading days.


So, is this a new bull market or is this the continuation of the bear market from Feb-Mar 2020 decline?


Since the peak in February, SPX has made 30%-plus moves in both directions. Conventional wisdom states a bear market is typically defined as a 20% or more decline from the high. Conversely, a market that has gained at least 20% from its market’s bottom is the start of a new bull market.


Official or not, this would imply SPX has suffered both a bear market decline from Feb to Mar 2020 and a bull market rally from Mar 2020 to present. Some believe the primary reasons for the quick and sharp market recovery from the Mar 2020 bottom is due to the unprecedented monetary and fiscal stimulus by the FED and the US government. It is, therefore, reasonable to say that this current rally is either the first stage of a new bull market rally or this is one of the largest and strongest oversold bounces in the past 100-years.


Technically speaking, a bull trend is defined by a series of rallies where each rally exceeds the highest point of the previous rally. The decline between the rallies also ends above the lowest point of the previous decline. The definition of a sustainable bull trend or a bull market is depicted on the charts by a series of successive higher-highs and higher-lows.


Based on the above premise, to officially call this as the next major bull market SPX must convincingly close above the prior all-time high, and most importantly, on any subsequent corrections, SPX must also maintain a series of higher-lows. In the case of the SPX, this would imply SPX breaking out above the 2/19/20 record high of 3,393.52.


But is it as simple as establishing a higher-high, and a higher-low pattern that will decide whether SPX is in the next bull market?


Enclosed below is a 2-year chart of SPX accompanied by three key market internal technical indicators including advancing issues minus declining issues, volume breadth, and % of SPX stocks trading above their 200-day ma.


It is important to remember that despite the volatile swings this year a 2-year broadening pattern (megaphone) remains intact. The outcome of this pattern may help to answer the above question as to whether this is a new bull or the same bear. Note the top of the broadening pattern is now rising at 3,524 and the bottom of the pattern is declining at 2,155.


Will SPX breakout to new all-time highs and the momentum from the breakout carry the index to the top of its broadening pattern before encountering a major test of resistance?


Source: Courtesy of StockCharts.com

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