These 2 Charts Strongly Imply the Bear Market Is Over (Despite the Recent Selloff)
We’ve seen a massive summer rally here in 2022. Some of our favorite small- to mid-cap growth stocks are up as much as 130% since mid-June. And the hottest debate on Wall Street continues. Is it just another bear market rally – or the start of a new bull market?
There are lots of smart people on both sides of the aisle.
JPMorgan (JPM) strategist Marko Kolanovic and Fundstrat’s research head Tom Lee are in the bull camp. Both believe inflation has peaked, the Fed will slow rate hikes, and stocks will rise another ~15% into year’s end.
On the other side of the aisle are Morgan Stanley (MS) strategist Mike Wilson and Big Short legend Michael Burry. The former sees earnings tanking, and the latter just sold every single stock in his portfolio.
So… who is right in this bull-versus-bear debate?
The bears have some great points. But the bulk of evidence today suggests that the bulls are right. The summer rally is the start of a big new bull market.
Big Summer Breakouts Don’t Indicate a Bear Market Rally
Historically, big summer rallies tend to be very bullish. That is, when the stock market rallies big in the summer, it tends to rally big into year’s end, too. That’s especially true when the summer rally comes on the heels of a bear market.
So far in July and August, the S&P 500 is up about 13%. Indeed, that marks one of the biggest summer rallies on record. Over the past 35 years, the market has rallied more than 10% during July and August only three other times. That was in 1989, 2009, and 2020.
Each time, stocks proceeded to soar into the end of the year.
In the final four months of 1989, stocks rose 13.5%. In 2009, they popped 16.9%, and in 2020, they flew 20.2% higher.
The 2009 and 2020 examples are particularly relevant today because those summer rallies were new bull market breakouts. Stocks bottomed after the 2008 financial crisis in March 2009 and then again during the COVID-19 crash in March 2020.
Therefore, the most fundamentally relevant precedents of today’s trading action – a big summer rally after a nasty bear market – imply stocks will surge almost 20% higher into the end of the year.
If they do, we have the perfect high-growth stock to play this big melt-up.
The Summer Rally Has Been Very Healthy
One of the most important characteristics to determine the quality of a rally is breadth – or how many stocks are participating in the rally.
Typically, healthy rallies are very widespread. Most stocks tend to participate. Such widespread rallies are said to have good breadth.
On the contrary, unhealthy rallies do not have good breadth. They tend be narrow, with the rally being driven by just a few stocks.
And in fact, this summer market rally has had exceptional breadth.
Specifically, as of last week, about 93% of S&P 500 stocks were trading above their 50-day moving averages. That means more than nine of every 10 stocks in the S&P is currently trading above its medium-term price trend. In other words, more than nine out of 10 stocks in the S&P 500 has participated in the summer rally.
That is incredible breadth.
It’s very rare to see such strong breadth in a market rally. Since 2000, this “super breadth” phenomenon has occurred only a handful of times. It has always occurred during market upturns and never occurred in a downtrend.
In other words, never – not once – during the dot-com crash or 2008 financial crisis did 90% of S&P 500 stocks trade above their 50-day moving averages until after the crashes were over. This phenomenon only appeared after the market had already bottomed and was taking the elevator back up.
Bullish? We think so. That’s why we’re pounding the table on one high-growth space stock to buy today for a massive surge over the next 12 months.
The Final Word
Listen; the stock market will remain very turbulent over the next six to 12 months. There are going to be lots of big rallies and lots of big selloffs. But importantly, the data suggests that the magnitude and duration of the rallies going forward will be bigger and longer, respectively, than that of the selloffs.
Two steps forward, one step back.
We just took two huge steps forward. Now, we’re due for a step back. Let the markets take that step. Embrace it. Buy the dip.
Why? Because fortunes are made in times like these. When a bear market transitions into a bull market, fortunes are made in a hurry!
In those transition periods, investors have the opportunity to score a decade’s worth of returns in a single year. They have the opportunity to see their investments soar 5X, 6X, even 10X in value in 12 months or less.
It’s a once-in-a-decade investment opportunity – and it’s happening right now.
So, let stocks retreat over the next few days and weeks. Buy the dip. And as inflation cools and stocks soar to new highs, make fortunes over the next 12 months!
But what stocks should you be loading up on right now?
Well, we’ve spent the past several months scanning the market for the best tech stocks in this bear-to-bull market transition.
Ultimately, our research led to us to one space stock as the single best buy in the market right now.
What makes it so special?
Well, it’s the only stock in the market that can realistically soar 10X in the next month alone.
Seriously. This company is about to do something so special that its stock could really rise by 10-plus over the next few weeks. And investors are catching wind of this story. That’s why the stock has been on fire lately!
Don’t miss out on this amazing wealth-building opportunity…
On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in the securities mentioned in this article.