A Bear Market Rally Or The Resumption Of The Bull Market?

January was the worst start of a New Year in the history of the US stock market.

Last week was one of the most intriguing weeks in global equity markets ever. As the week got started, there was a powerful sense of foreboding that stock markets around the globe were going to crash. Last Wednesday, January 20, 2016, many global indices were making new yearly lows, some of which had fallen below the 20% mark which have been associated with a new bear market.

Investors have been so scared and they pulled $24 Billion from their equity funds so far this month. They are fleeing into US Government funds shifted $5 Billion so far this year. This was the largest inflow of cash in over one year.

As I mentioned in last week’s article we should see the stock market stage a bounce or rally, and why this was a good price level for it to start. With everyone jumping off the ship bodes well that the market should go against the masses emotional trade. I took a long position on the SPY on Wednesday, January 20th 2016 with subscribers.

The SPX index took out the low of August 24, 2015, while the DJIA is still 600 points higher. The Dow Jones Industrial Average held above their lows of August 24, 2015 for a clear case of intermarket bullish divergence. This was validated last Friday, January 22, 2016, when each of these indices closed above daily resistance as the DJIA up over 200 points. That is not a bad recovery. However, maybe it was not so great when you consider that it had fallen 2300 points from the 17,750 high of December 29, 2015 just three weeks earlier.

The Asian markets, except the Chinese Shanghai Index, broke below its low of August 26, 2016 last week. It bounced back spuriously by the end of the week. The Hang Seng of Hong Kong fell to 18,534, its lowest level since June 8, 2012. The Japanese Nikkei plummeted to 16,017 on January 21, 2016, its lowest point since October 2014.

Now everyone is wondering if this is the end to the stock market decline? Will stocks resume their bull market? Do not be surprised to see a bounce up first from these levels.