Usually the steepest stock market rallies come after multi-year bear markets. Most stocks are discounted below their fair value in bear markets, at some point these bargains become irresistible to smart money traders/investors. Even before an economic contraction ends, savvy traders/investors rush in to buy stocks – triggering sharp rallies.
The monthly S&P 500 (SPX) chart courtesy of Trading View illustrates the kickoff rally after the 2007 to 2009 bear market.
The initial move up from March 2009 to April 2010 climbed a 61-degree angle. The subsequent middle phase of the secular bull market rose at a 22-degree angle. Most of the time stock bull markets end with a lesser degree angle than the middle phase. However, there are exceptions such as the 1999 to early 2000 Nasdaq bull market blow off top.
Note that the rally phase that began March 2020 is currently at an incredible 74-degree angle. Could the move up in US stocks since March 23, 2020 be the kickoff of a new multi-year bull market? Anything is possible, however the bull market that began in March 2009 came after a seventeen-month bear market. The 2020 decline was only one-month and is most likely a correction within the multi-year bull market. If the move up from March 23,2020, is a termination rally, its sharp angle implies a blow off top is in forming.
How long and far could the termination rally continue? The answer may be found by a close examination of the March 2009 to 2010 rally which will be explored in the next blog.