Modest Stocks Rebound – A Mini Recovery

The stock market recovered on Friday after having two terrible days. In bull markets, stocks recover slowly. In bear markets, stocks recover quickly and then lose more value even quicker.

Fiercest rallies are in bear markets because traders fall into the trap of thinking the bear market is over. The market acted like it was still dealing with uncertainty. It rose and fell sharply on Friday.

The market opened green, then fell back to the flatline. And finally closed up 1.42% which is near where it opened the day.

The Nasdaq increased 2.29%. Russell 2000 only increased 8 basis points even though it was the most oversold heading into the day.

The best performer in the S&P 500 was Netflix. It rallied 5.7%. The best sectors were technology and consumer discretionary. They increased 3.15% and 2.15%.

Even after falling to a new 52 week low, Facebook only managed a 0.25% gain. It is in the dog house.

The worst two sectors were real estate and utilities. They fell 7 basis points and rose 6 basis points.

Modest Stocks Rebound – Fear Is Still Strong: I’m A Buyer

The market was so oversold, it would have been shocking if there was another down day. Even with the increase, the CNN Fear and Greed index is at 11 which shows extreme fear.

I’m still very bullish in the near term. I am bullish on the next month’s action based on the extreme fear shown in the CNN Fear and Greed index. The table below shows the index has successfully predicted gains 86% of the time even in bear markets.

Stocks rally more often in bear markets than they sell off in bull markets.

As you can see from the chart below, 2018 has only been slightly more volatile than 2017. There have only been 2 days where the stock market has been down 10%.

Even though the financial press and I have called this recent decline a correction, it’s still only a minor dip. I don’t question why it occurred because even in the best markets there are some downturns. I’m a buyer because the fundamentals are strong.