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Why investors are afraid of a historic recovery on the stock market, to fear a "bad bear trap"



The biggest daily rally after Christmas in the stock market history failed to convince investors that Wall Street had seen the worst sell-off at the end of the year, threatening to end the second longest bull market. In fact, it could have done the opposite.

The Dow Jones Industrial Average

DJIA, -1.53%

was down significantly on Thursday, returning part of Wednesday's 1086-point rally, up 5%. The S & P 500

SPX, -1

.67%

also followed their tandem jump by 5% with a decline while the Nasdaq Composite

COMP, -2.13%

gave off part of its profits. The rally on Wednesday marked a rebound from Monday's sell-off, which was the worst performance on Christmas Eve for all three indexes of history.

See: Therefore, the big upturn in the stock market does not mean that investors will outperform the bear.

So why not pick up the holiday after the holiday?

Russ Mold, investment director at AJ Bell, offered the table below in a Thursday note. It looks back on the 20 largest single-day percentage profits of the 1970 S & P 500, totaling nearly 12,800 trading days.

Greatest gains since 1 January 1970
Date Daily Change in S & P 500
1) 13.10.2008 11.6%
2) 08.10.2008 [19659013] 10.8%
3) 21.10.1987 9.1% [19659014] 4) 23.03.2009 7.1%
5) 24.11.2008 6.5% 6.4%
7) 11/21/2008 [1965901363%%196590148] 24072002 5.7%
9) 30.09.2008 5.4%
10) 29.07.2002 5.4%
11) 10/20/1987 5.3%
12) 16.12.2008 5.1 %
13) 28.10.1997 5.1% [19659014] 14) 9/8/1998 5.1%
15) 27.5.1970 5.0% [19659014] 16) 1.1.2003 5.0%
17) 26.12.2014 5.0%
18) 29.10.1987 4.9% [19659016] 19) 20.10.2008 4.8%
Sources: Refine Data, AJ Bell

The cops are encouraged to attend three of the 17 other days a plus of 5% or more occurred immediately after the crash of October 1987, "while the purchase proved to be a good plan" two more came in March 2009, when the S & P 500 bottomed and its current Bull run started.

Mark Hulbert: This signal of contrarian stock exchange flashing green.

But here is the turn. Eight of those gains of 5% or more were made in the 2007/09 market, and three more during the 2000-03 downturn: "There is still a risk that this year's Boxanza tag bonanza could only be a nuisance. Bear trap should be investors In fact, market veterans warn that massive one-day rallies are often more characteristic of downturns as sales lead to severely oversold technical conditions that make markets ripe short coverage only to resale As soon as the rush of forced sales is exhausted, investors who undercut a stock are essentially expecting their price to fall by first lending out the stocks, but these dealers may be forced to buy back shares when the stock is flooded Prices suddenly rise higher, which in turn can increase price volatility.

On the other hand, learn Stock prices plunged sharply in Monday's shortened prices. Overall, there was a decline of more than 2%. Internal indicators, some of which analysts said they have some long-awaited signs term-washout or so-called surrender, where the final failures during a market downturn finally throw in the towel.

After Wednesday's robust reversal of "massive" forward / fall amounts and "surprisingly firm and above-average" total volumes, it is possible for stocks to set a tactical low, though it is unlikely that an "ultimate low" has been established technical analyst Jeff deGraaf, chairman of Renaissance Macro, in a note from Thursday.

"How much do we trust the market message in this holiday week up or down? About as much as we drive Uncle Albert home after Christmas dinner, "deGraaf quipped in his Research Note.

Resistance for the S & P 500 remains at 2,600, an admittedly" big step "from the current 2,433, What "It also shows how much damage was done in a short time," he said. DeGraaf said the structural sentiment data led him to suspect that more weakness is likely to be expected in 2019, but "the pendulum, which represents human behavior, is likely to look more optimistic at the beginning of the new year."


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