The Bear Market Bottom Is In

The recent stock rally is reason to celebrate...

The market took a hit last week. But the two-month rally that happened before that created a crucial setup – one that adds more support to the bullish picture.

Since 1950, this gauge has had a perfect track record of signaling the transition from a bear market to a new bull market. It just triggered. And that means one thing...

The bear market bottom is in.

Today, I'll share what happened... and why any pullback from here will be a major buying opportunity.

Calling the transitions between bull and bear markets is tricky.

Stocks began falling at the start of the year. With inflation raging and war breaking out in Europe, it soon became clear that last year's easy-money ride was over.

Still, it took until June for stocks to fall 20% and officially enter a bear market. Now, everyone's wondering if the most recent rally is a new bull market underway... or if the new pullback will lead to new lows for stocks.

There isn't an easy answer. Some say a 20% rally from the low will make it a new bull market. Others say we need to hit new highs.

But we have some clarity thanks to one indicator. It tells us that the June low was likely the ultimate bottom for this bear market.

It's a simple measure. But it has held true in all 10 bear markets over seven decades. Here's the idea...

Stocks can stage sizeable rallies even during bear markets. They're called relief rallies. But they usually end quickly and lead to further declines. One type of relief rally tends to signal the bear market's end, though.

Specifically, it's when stocks recover 50%-plus of their overall losses. That typically means we won't see new lows.

In today's case, stocks regained more than half their overall losses on August 12. Take a look...

The S&P 500 Index jumped 17% from June 16 to August 16. And that rally regained 57% of the overall bear market loss.

Again, this indicator has had a perfect record since 1950. Stocks have never gone on to hit a new low after that kind of rally.

That doesn't mean we'll see a one-way run-up from here, though. And even so-called "infallible" indicators can fail eventually. But a 10-for-10 track record over 70 years is darn good.

Stocks have been falling since hitting this crucial level. And there's a good chance we'll see more downside ahead. But history suggests, at worst, stocks will approach the June low... without breaking it.

This is a good sign for investors. Even if stocks drift lower, we know the ultimate bottom is likely behind us. That means you should be gearing up to buy if stocks get anywhere near the June low.

Good investing,

Brett Eversole

Further Reading

"The S&P 500 Index rocketed 9% higher in July," Brett writes. That's a major move in one month – in fact, we've only seen similar rallies 2% of the time since 1950. And according to history, this means strong outperformance is possible in the next year... Read more here.

One specific group of stocks has also rallied in recent months. This is a rare signal... And it's another reason the bear market's bottom is likely behind us. Plus, if this uptrend continues, it could mean 34% upside from here... Learn more here.