Are We Really Still in a Bear Market Despite the Bounce?

Posted On April 17, 2020 3:00 pm
By: Steve Smith

Last week, stocks posted their best week in 46 years and assuming Friday’s rally holds are on pace to gain over 15% for the two-week spa, this would leave the “SPDR Trust (SPY)” a full 25% off the March low and just 16% below the all-time low.

Technically, this might move the market out of the 20% decline that defines a bear market. But can one really say that a recession was both priced in and then recovered from, in less than a two-month span?

First, many will point to the various ways a ‘bear’ market and its cessation can be defined. I’m of the camp that a new bull market doesn’t begin until a new high is made to begin a fresh starting point for measuring the size and duration of a bull phase. But, some of this “bull” or “bear” is just semantics and I think we should all agree the basic long term uptrend has been broken and despite the recent big bounce both the 100 and 200-day moving averages are still bending downward.

Many people are looking to the options market, which is essentially predicated on the probabilities of what the future may hold, for clues as to whether we are truly out of the bear phase. For the big picture view of what options volatility is saying, we can turn to the CBOE Volatility Index (VIX) which measures the implied volatility of the S&P 500 and by default the SPY.

The higher implied volatility or VIX is the wider range of price movement the market is bracing for. Or put another way, the greater the uncertainty. And given that we know the market hates uncertainty, it’s understandable how the VIX became known as the ‘fear gauge’ and is associated with falling or bear markets.

While the VIX has declined by half from the peak of 85 it hit in late March, the current… Continue reading at StockNews.com

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About author

Steve Smith

Steve Smith have been involved in all facets of the investment industry in a variety of roles ranging from speculator, educator, manager and advisor. This has taken him from the trading floors of Chicago to hedge funds on Wall Street to the world online. From 1987 to 1996, he served as a market maker at the Chicago Board of Options Exchange (CBOE) and Chicago Board of Trade (CBOT). From 1997 to 2007, he was a Senior Columnist and Managing Editor for TheStreet.com, handling their Option Alert and Short Report newsletters. The Option Alert was awarded the MIN “best business newsletter” in 2006. From 2009 to 2013, Smith was a Senior Columnist and Managing Editor for Minyanville’s OptionSmith newsletter, as well as a Risk Manager Consultant for New Vernon Capital LLC. Smith acted as an advisor to build models and option strategies to reduce portfolio exposure and enhance returns for the four main funds. Since 2015, he has worked for Adam Mesh Trading Group. There, he has managed Options360 and Earning 360, been co-leader of Option Academy, and contributed to The Option Specialist website.