Beware of This Latest Bear Market Rally

It’s happening again. We are in another bear market rally – the fourth in 2022 – and far too many talking heads are calling for everyone to get in the pool. The problem is, things are still floating in that pool that can cost you plenty of your capital. They tell you this rally will be different than the previous three. Beware of those statements. I prefer to let the market direct my actions, and that usually works out best.

Beware of this latest bear market rally

This latest rally has pushed indices 12% higher since the start of October. That is impressive, but it’s not nearly as strong as the March, June, or August rallies; that last one saw indices surge about 20% in six weeks. All of those rallies fizzled out thanks to the The Fed’s aggressive and hawkish monetary policy. At the time, there was little chance the rate hikes were slowing, let alone ending, regardless of the rhetoric.

This time around, we had a deep oversold condition and a slightly lower inflation reading that encouraged equity buyers to pile on, and that they are doing. We are certainly seeing a change in character for the indicators. MACD is on a buy signal and the intermediate (weekly) signals from money flow, rate of change and stochastics are all turning bullish. But remember, we saw the same things happen in the summer. These are not necessarily “all clear” signals.

Don’t assume those talking heads have more knowledge than us or access to information that we don’t. They don’t know any more than we do; they just have a platform that amplifies their guesses at wild outcomes. Nobody seems to remember the bad calls, of which there are many. Listen to them, and you’re sure to lose money. Perhaps you’ll get a shallow “Oops, I was wrong.” That doesn’t cut it in my book.

Keep your eye on charts. The market itself will tell you how to proceed.

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