Thursday’s Markets: Bear Market Bounce or Bear Trap?

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There was a lot of relief on the Bubblevisions and amongst the bulls yesterday with the rally which finally happened in the markets. Everything seemed to rally except there was this nagging feeling that it was not genuine as the market internals were ‘meh’ at best and the volume while decent was not higher than any of the days with major declines.

This author’s favorite leading speculative indicator finally rallied above the 200 day moving average but is this the beginning of a new leg up, aka a bear trap, or the marker of the end times for the bulls?

After an over 20% decline from the July highs, this index appears to be telling everyone the party is over.

If the SOX fails to break out above the declining 50 day moving average in the weeks ahead, look for another retest of the recent lows with a potential break to even lower lows. It is too early to tell but there are historical precedence for markets to go much, much, lower.

For example, the best known event similar to what is happening now according to the “old guys” was during the internet boom of 1999-2000. In March of 2000 Cisco and many other tech stocks that were thought to be invincible were blasted lower in a similarly massive sell-off. A relief rally occurred which provided some false hope to the bulls.

Ironically enough, yesterday’s rally from the lows of the day was just about 3%. Weird, isn’t it? But is that a reason for hope? For the bulls it is, but history is a cruel teacher.

The bottom fell out shortly after that.

Despite the preaching from the usual suspects that “markets almost always go up in Election Years” the truth is that the election cycles have been distorted by economic circumstances in almost every election since the year 2000. Where that distortion is caused by political interference and malfeasance, crashes, or geopolitical circumstances is irrelevant, the charts do not lie even if the Bubblevisions and politicians do.

Tread lightly as this market is for the pros and they live to separate the retail bag holders from their money.

Beware the bear.