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A Sucker's Rally?
Submitted by Lance Roberts via STA Wealth Management,
In last week's technical review "The Mark Of A Bear," I stated:
"The Bulls have remained firmly in charge of the markets as the reach for returns exceeded the grasp of the underlying risk. It now seems that has changed. For the first time since 2007, as we see initial markings of a potential bear market cycle."
The problem in stating that we MAY be seeing the initial markings of a potential bear market cycle is that individuals assume this means the markets will crash immediately. When such an outcome does not occur, the analysis is presumed wrong.
However, it is specifically that denial that leads investors to jump back into the markets just before the ensuing crash occurs. This is known as the "sucker's rally." As shown in the chart below, this may be the setup that we are currently witnessing.
With relative strength trending lower, volumes on advances weak and sentiment poor, it is highly likely that any bounce over the next few weeks will likely fail.
A Look Backward
One advantage of technical analysis is the ability to look backward to get a glimpse at how the "madness of crowds" reacted in previous similar situations. While the past is by no means a perfect predictor of future outcomes, human nature tends to be quite insightful.
2000
The chart below of "dot.com" bust shows many similarities between the behavior of investors then and today.
As shown, during the market advance in 1999 the previous bullish trend support moving average tended to confine pullbacks in the markets. This supported the notion of "buying dips" as each decline from overbought (red dots above and below) to oversold (yellow dots) conditions set up the next rally in the ongoing bullish trend.
However, it is the TREND that we are most concerned with.
Notice that beginning in August of 2000, the dynamics of the market changed. After breaking previous support levels, the markets retested the lows of a year earlier. (Sound familiar?) But, the subsequent bounce failed to move above what was previous the long-term bullish support moving average.
It was at this very precise moment that the previous bullish trend ended, and the bear market trend emerged.
As the Wall Street adage goes "the trend is your friend."
From this point forward, each oversold condition provided a "sucker's rally" to the now bearish trend moving average resistance. For investors, there were only fleeting opportunities to escape the "grasp of the bear" before the ensuing decline continued.
It is during this bearish trend that "buying the dips" and "dollar cost averaging" into investments is a much less optimal strategy due to the inherent destruction of capital.
2007
We can also see many similarities between today's market setup and that of 2007-2008 as well.
I have again noted the bullish trend support moving average that contained the previous bull market that began in earnest in 2003. With the market trading firmly above the moving average, each corrective action to it provided an opportunity to add risk exposure to portfolios.
However, as in 2000, the dynamics began to change in late 2007 and early 2008. Much like we have witnessed since the beginning of 2015, the market in 2007 began to trade sideways as internal dynamics deteriorated and momentum declined.
Then, in December of 2007, which would be recognized as the start of the recession a year later, the market failed to climb above its previous bullish trend support. That failure led to the subsequent break of the lower support level (green horizontal line) that had been holding since the beginning of that year.
As it was in 2000, it was at this precise moment that the bear market cycle officially emerged. Each subsequent decline to oversold conditions lead to a "sucker's rally" that failed at the now bearish moving average trend.
The initial retest of the previous lows in March of 2008 ultimately failed. That failure, and each ensuing "clearing" rally thereafter, only provided brief opportunities for investors to reduce risk and seek safety from the "mauling of the bear."
As the bullish TREND turned negative, few investors were warned by Wall Street or mainstream analysts of the danger that was stalking silently behind them.
Tracking The Bear
While it is too soon to state categorically the next bear market has begun, it is worth noting the many similarities in today's market action relative to that of the previous two bear markets.
As shown in the first chart above, the markets have:
- Broken two important levels of support
- Broken the bullish trend moving average
- Exhibiting a deterioration of internal measures, relative strength and momentum.
These were previously early indicators that something had clearly changed for the worse. But it was not untill much later that Wall Street, the media and investors looked backed and realized the obvious causes. It wasn't until a year later, in 2008, that the NBER looked back at much revised data and proclaimed the start of the economic recession rather than Bernanke's "Goldilocks Economy."
The markets are clearly sending the same warning signals that they always have. It is only a question of whether we are willing to listen, or allow our "greed" to keep us at the casino table hoping for one more "hot hand."
One thing is for certain, if the market does muster a rally strong enough in the week's ahead to retest the previous bullish trend moving average, it could very well be a "sucker's rally." Any failure will likely mark the beginning of a new bear market cycle. And, just as before, there will be no warnings, no announcements by the media, or acknowledgement by Wall Street analysts. However, the consequences will likely be just as severe.
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There's one born every minute. Those who do not learn from history are doomed to repeat it.
This time its different bro...right?
I have no idea if it's a sucker's rally to be honest nor if the market is ready to crash like all the articles on ZH seem to indicate, but I do know that those who short this market are getting creamed.
I don't give a rat's ass what the fundamentals are saying, repeat after me, you can not short a grotesquely manipulated market especially one that has been turned into a policy tool instead of a price discovery mechanism.
It's *THAT* fucking simple.
“According to one opinion the late unpleasantness in the stock market was merely a little hesitation in the major movement of the big bull market. A broker who explained this point of view to one of his customers yesterday met the fervent response: “Thank heaven, it was just a little hesitation.”
Source: New York Times - March 4, 1930
Yeah, a "hesitation" that lasted until WWII and the 1940's.
Completely agree BTB
I noticed it myself today, my puts all get torched today even as the rise wasn't that high, I lost more then I made when the markets dropped 5% today. I sold it all and I'm to confused to get back in one side or another.
All I do know for sure is that I'm using 3 cards a day to pull the maximum amount of cash out of the wall because when this boat goes down, there will be bank hollidays. And that's why I need 1 year in cash asap, I'm not taking that risk again.
u can't pull cash in a chunk? Need to use multiple cards for multiple accounts to siphon off just enuf money to get to your promised land? I'm sure that no one else has come up with this strategy and that the revenooerz are totally asleep at the switch, as it were, blissfully ignorant of your ploy.
I always knew that god-forsaken Eur-style options sucked. Bastards only have one target date-certain to impose maximum pain. Sometimes, not very often truth be told, a tiny little piglet can get sufficiently greased up to squeeze through the gates.
A lot of it is in the optics. They can prop it up but it keeps going back down and sooner or later something is going to break.....
Oas down from 58 to 11. CLR down from 80 to 30. WLL down from 92 to 18. GPRO down from 95 to $36. AMBA down from 129 to 70. YELP down from $105 to $24. X down from $45 to 14. CAT down from 108 to 73. TWTR down from 55 to 27. KSS down from 80 to 50. WYNN down from 220 to 74. UVXY down from 500 to 64. CHAU down from 58 to 19. ASHR down from 55 to 30. YINN down from 68 to 15
Please say that again? And most of these puts could have been bought for super cheap when the VIX was 12-15. Your comment is bullshit.
Stated otherwise: The market can stay irrational longer than you can stay solvent.
..a sucker's market
It's never been a market for logic but if you follow the greed you can actually make some good money :)
Anyone still in the "market" is a sucker.
"market" been rigged for decades, how many decades does it take for someone to get the drift?
it was completely rigged way before they made the film "Wall Street", released in 1987, 28 years ago, and it's even worse now with more deregulation, HFT, PPT, QEinfinity, croney Government, unfettered racketeering, unregulated derivatives (completely completely rigged, rigged squared)
before 1987, you had a slim chance, now? slim left town
insider, different story, make minced meat out of the suckers
The sell-off started at a strange time, in August, when most shorts were anticipating Sept or Oct. It could take a month or so before we really see the trap door open. Or it could be tomorrow!
How much of today's sucker rally was Apple pre-event hype that will be reversed tomorrow?
Gospel singers replace ‘Jesus’ with ‘Hillary’ in bizarre Clinton eventhttp://tinyurl.com/qc4gr2q
Nobody knows the troubles I've seen,
Nobody knows but Hillary.
Works for me.
No - it doesn't, actually.
This rally in ES has been sold into the whole way up. Very little legit new business.
I'm beginning to fear that the manipulation is going to outlive me and my hoard of silver/gold.
Couldn't agree more. Oh well, misery loves company. Thanks to Gerald Celente, Alex Jones and Jim Willie, I bailed out of the stock markets 7 years ago and bought PM's... How we doing now??? Now I'm stuck buying metal and I have enough dry food to last me 6 months... All my wife does is shake her head and giggle.
In a week you will be vindicated. And, she will owe you blow jobs on demand for life.
I like your attitude mister! Was it over when Germany bombed Pearl Harbor??? (Animal House)
Incidently, the worst BJ I ever had was Great!
Harumph. I guess you never had a vindictive girlfriend with TEETH.
But on the metals thing, totally agree. I'm hoping that things hold together well enough that I can do one final buy this Friday...in b4 the false flags, yo.
I am sooo with you. My wife as well as friends will say under their breath..."uhhh uhhmmmm how is that gold working out for ya..?" I just want to see this fucker crash...so I can say fuck youuuu to all of them. Are all of us gold and silver bugs out of our mind...did we fall for just a big metals marketing scheme...we will see.
Try having your spouse back you in a corner holding one of your Maple Leafs saying " Explain to me how this rock is going to get us an 8% return?" Or everyone at work laughing at my recent purchase " yeah, Miffed LOVES depreciating assets!"
It's hard to keep the faith when you are alone. Thank goodness I like myself for company.
Miffed
A leaf in the hand is worth two... in .
onvm
The mkts can definately remain sane longer than you can remain solvent.
Take advantage of "dead cat" bounces like this and sell whatever you have left.
Most of this rally off the lows has come before the market even opens. moved up 200+ today before the start. Then trades sideways all day until the last hour pops. Same last Friday. Totally fabricated, looks like someone is baiting you in. Not hungry, thanks
Im neither bull nor bear, But a minnow that trys to avoid schools of desperate sharks.
Yep, I'm another minnow.
dont fool yourself, PBOC have a silver full metal jacket bullet for every bear..
Bears aren't werewolves... But I get yer point --
The joke is that the markets have barely declined! An 8% rally (2.5 days at today's rate of climb) and it is back to all time highs and then you are back to a market trading at 18x this year's earnings pretending like nothing could possbily go wrong...even as things are going wrong.
The joke is that the markets have barely declined! An 8% rally (2.5 days at today's rate of climb) and it is back to all time highs and then you are back to a market trading at 18x this year's earnings pretending like nothing could possbily go wrong...even as things are going wrong.
Unfortunately the entire rally was a "sucker's rally" but fading it was deadly to your financial situation. Somebody needs to have an in at the central bank cabal to keep us abreast of the status and intentions of the NY Fed plunge control trading desk. Otherwise we are just flying blind and schlogged around by the predatory algos
I see Ribeye!
"Never give a sucker an even break or smarten up a chump" - WC Fields
Aren't 'sucker's rallies usually dependent on the liquidity of the preceding 'male genital' rally'?
Sell gold... what was the question again?
left lane for the slaughter house and right lane for confiscation...
Shemitah, don't fail me now!
A great example of this market is go to a mirror and play patty cake with yourself. The Robots only move forward on FED intervention or QE from The ECB or The IMF Or QE from China. This has nothing to do with anything but how much more liquidity there is left to grab! These motherfuckers have lit the ticking time bombee and when it goes there will be nothing left...
"Don't fight thr Fed."
-- Marty Zweig