Here’s How the Stock Market Could Tumble or Rally This Summer

A relief rally in the business or finance industry is a strategic event or occurrence commonly used to describe a situation where the price of a stock or a market increases after a period of decline. This is most times a response to a piece of positive news following a somber mood cast by events such as a bearish run or negative economic indicators. Perhaps the company released a better-than-expected earnings report or there’s been a significant development within the industry or the wider economy. This provides an opportunity for investors to strategize their investments, possibly purchasing assets at lower prices to benefit from the impending upward swing.

  1. As a study on a weekly time frame charts, this will plot 1 (or true) only when we have 7 weekly candle closes in a row.
  2. Since bear markets last for long periods of time, they can correct an emotional drain on investors expecting a market circle back — consequently the “relief” when indications of a bounce show up.
  3. This indicator makes it easy to spot when we’ve been in a similar position previously in history.
  4. The chart below shows that the RSI indicator reached overbought territory midweek before falling into oversold territory on Thursday.
  5. Short squeezes can happen when a company announces good news or when investors believe that a stock is undervalued and due for a rebound.
  6. And all of them that did have the year on year CPI reading at levels similar to where we are today did end up falling into bear markets.

The most recent was in October 2023, accelerating the rate of increase. The intensity and breadth of Wednesday’s post-announcement rally suggests some investors think the Fed can thread the needle of tamping down inflation with tighter policy without sparking a significant economic downturn. However, Cramer said that he thinks the vocal Fed skeptics will not be swayed by Wednesday’s relief rally. And both stocks and bonds will likely remain volatile, as investors zero in on economic data as well as corporate earnings, which will become a factor when the second-quarter earnings season begins next month.

And that’s why we saw the growth areas of consumer discretionary, communication services, and tech end up being the outperformers, at least for today and possibly for the near term. Ether prices jumped 10% Monday as the upcoming merge into “Ethereum 2.0” has renewed enthusiasm for the world’s second largest cryptocurrency. Sitting just behind bitcoin in market cap, ether traded above $1,500 early Tuesday, gaining roughly 50% over the last four weeks. A member of the Ethereum Foundation said on Twitter that the highly anticipated “merge” event could happen mid-September. Global shares, however, wavered as investors focused on upcoming central bank meetings, starting with the European Central Bank this week.

Adam Hayes, Ph.D., CFA, is a financial writer with 15+ years Wall Street experience as a derivatives trader. Besides his extensive derivative trading expertise, Adam is an expert in economics and behavioral finance. Adam received his master’s in economics from The New School for Social Research and his Ph.D. from the University of Wisconsin-Madison elliott wave forex in sociology. He is a CFA charterholder as well as holding FINRA Series 7, 55 & 63 licenses. He currently researches and teaches economic sociology and the social studies of finance at the Hebrew University in Jerusalem. Then, if the ETH price breaks down from the range, it can fall 17% to the closest support at $1,900.

Sucker rallies are easy to identify in hindsight, yet in the moment they are harder to see. As prices fall, more and more investors assume that the next rally will mean the end of the downtrend. Eventually, the downtrend will end (in most cases), but identifying which rally turns into an uptrend, and not a sucker rally, is not always easy.

Finance: What is Dead Cat Bounce?13 Views

Sizeable buying activity in a particular stock or sector by a large fund, or an introduction of a new product by a popular brand, can have a similar effect that results in a short-term rally. For example, almost every time Apple Inc. has launched a new iPhone, its stock has enjoyed a rally over the following months. Price action begins to display higher highs with strong volume and higher lows with weak volume. A stock-market relief rally appeared to be shaping up to start the week, but the potential reward from chasing a bounce from here remains limited, according to one Wall Street technician.

Underlying Causes of Rallies

Every bear market between 1901 and 2015, spawned at least one 5% rally. Rallies of 10% or more interrupted two-thirds of the 21 bear markets over that span. Also, if you’ll look to the percent of subindustries in the S&P 1,500, trading above their 10-week moving average, what we’re finding is that’s only about 7%, which is at two standard deviations below the mean. At least for the near term, things have been shaken out enough.

By rebalancing, we are able to more systematically trim overpriced assets and buy underpriced assets, keeping client portfolios at their target allocation. This approach provides no guarantees in the short term, but it can reliably add value over the long term.5
Volatility and price declines are natural parts of a full market cycle. Staying invested and having faith in the resiliency and innovation of our collective economy has rewarded investors over every time period of sufficient length throughout history. A relief rally frequently occurs in the midst of a secular decline in the market or determined selling pressure that lasts for numerous days. Somewhat surprisingly good financial outcomes at times light relief rallies for pummeled stocks with a long history of missing analyst expectations for some quarters.

This money manager nailed two big stock turning points. These are his next ‘rocket ship’ ideas.

A relief rally does not necessarily spell the end of a secular decline, however. Both the dot-com crash and the 2007–2009 financial crisis saw several relief rallies for stocks, only to see renewed fears push market prices lower again. Relief rallies in these very bearish markets are sometimes called a dead-cat bounce. This type of relief rally happens when there’s a temporary recovery from a bear market or lengthy decline, but then the downtrend continues later. A relief rally often happens amid a secular decline in the market or persistent selling pressure that lasts for multiple days.

Real World Example of a Relief Rally

Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. North Berkeley manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Millions of workers gained a bit more authority during the Great Resignation, but the economy isn’t going to let things stay that way.

How to Use Volume to Improve Your Trading

So I think basically, I’ll have to put my thinking cap on to find out which song would be most appropriate, at least for a relief rally. As a relief rally example, stocks tumbled in August 2015, amid concerns about an economic slowdown in China, at the time the world’s second-largest economy. A devaluation of China’s currency also weighed on global markets, as many feared the slowdown could spread to the U.S. Market participants price in many different types of events, in addition to corporate earnings. Examples include election results, policy interest rate changes by the U.S Federal Reserve and new industry regulations.

“So, starting tomorrow, we’ll once again prepare for the worst and expect the worst … and as long as money managers are unsure, which they are, they’ll keep selling things that they shouldn’t,” Cramer said. “But, if you’re in my camp, you’re drawn to owning stocks here because there are plenty of companies that could do well, even if the more bearish camps turn out to be right.” He acknowledged there is uncertainty about the ultimate effects of the Fed’s 50 basis point hike. Before Wednesday, the last time the U.S. central bank raised rates by half a percentage point in one meeting was 2000. CNBC’s Jim Cramer said Wednesday he’s still “drawn to owning stocks,” even as the Federal Reserve aggressively raises interest rates in such a way that some skeptics believe will send the U.S. economy into a recession. A key gauge of the housing market just saw its steepest drop since the early days of the pandemic.

Whether that’s a leader and a new bull market or different, we have a long way to go before we get to that point. But some movement back in the pendulum swing against rate rises should lead to growth areas like tech. So Wilson’s a widely respected voice on the Street, but Stifel’s chief equity strategist, Barry Bannister, has just about the opposite forecast — he’s predicting the S&P 500 to jump at least 9% to 4,200 this summer.

You can use technical analysis to find these stocks, or you can even screen for them using fundamental criteria. The best way to take advantage of relief rallies is to be patient and wait for the market to show some signs of stabilization. In this short tutorial, we will discuss what relief rallies are, why they are important, and how you can find them in ThinkOrSwim using some simple thinkScript code.

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