When will this "Suckers Rally" end?

When will this “Suckers Rally” end?

Stocks continue to rally this week, even in the face of very weak gains for many major stocks.

Because?

Because… that’s why.

Remember that a rally in the middle of a bear market is no more significant than a correction in the middle of a bull market. They can happen at any time for any reason.

The key is to realize that the long-term trajectory has not changed and that we have yet to see the lows of this bear market cycle.

How high could this current rally go?

This will be the focus of this week’s commentary.

Market Commentary

Let’s start with the annual chart of the S&P 500 (SPY):

I’ve also layered the 3 key moving averages:

Red = 50 Day = 3,842

Green = 100 days = 3903

Blue = 200 Day = 4,113

The first thing to notice on the chart is how many failed rallies there have already been this year before making new lows. That includes the seemingly impressive 18% rally from June to August that absorbed many investors only to spit them out with a move to new lows.

This rally will also fail. Probably next week for 2 good reasons.

First is that right now we’re pushing against the 100-day moving average. We could easily run out of steam at this level, especially given the way we finished the week.

This is a TERRIBLE earnings report for Amazon (in addition to bad news from Meta and Google) that has broad implications for the economy going in the wrong direction. Amazon’s report had the stock right down at the open only to dramatically reverse course late in the session with a roaring rise of +2.46%.

This type of reversal is very common for the last gas of a rally before heading in the other direction. This means that the buying pressure may run out and it is difficult to break the resistance at the 100-day moving average (3,903).

Second, and more importantly, next week brings November’s most vital economic reports, starting with ISM Manufacturing on Tuesday. This is followed on Wednesday by the Fed’s rate decision with another hike on the way. Arriving at the home section we have the ISM Services on Thursday and then on Friday the Government Employment.

Remember, Monday’s Flash PMI report already confirmed weakening conditions for both manufacturing and services. (49.9 and 47.3 respectively…both less than 50, signifying contraction). This bodes poorly for the market-moving and more followed ISM versions of this report.

Along with that, we’re still probably in a world where most everything that happens next week is negative for stocks. Even positive economic news would be a sign that more inflation is in our future, pointing to a more aggressive Fed. Therefore, I expect the recent bear market rally to end with investors once again in a selling mood.

Based on previous comments, I have shared the opinion that the likely fund for this bear is around 3,000. And if things fall into their typical bear market pattern, that’s happening in the first half of 2023, just as the economy is likely to hit the depths of recession.

Yes, it’s possible that stocks could continue to rise a bit more, unlike the illogical mid-summer rally before new bear market lows were set.

Bear market manifestations are called “concentrations of suckers” for a reason.

So the word to the wise is…don’t be a sucker.

Expect this rally to end, as soon as this week. But it probably won’t be higher than the 200-day moving average of 4,100 that ended the last rally.

Invest accordingly.

What to do next?

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And now is a good time to load back up as we hit even lower lows in the coming weeks and months.

If you’ve had success navigating the investment waters in 2022, feel free to ignore it.

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We wish you a world of investment success!

Steve Reitmeister…but everyone calls me Reity (pronounced “Righty”)
CEO, Stock News Network and Publisher, Reitmeister Total Return

SPY shares. Year to date, SPY is down -17.15%, versus a % increase in the benchmark S&P 500 over the same period.

About the Author: Steve Reitmeister

Steve is better known to the StockNews audience as “Reity”. Not only is he the CEO of the firm, but he also shares his 40 years of investment experience in the Reitmeister Total Return portfolio. Learn more about Reity’s background, along with links to his latest articles and stock picks. Month…