Another Bear Market Rally?

On Tuesday, April 1, we saw a huge jump in stocks that was nearly across the board. The major averages all were up more than 3% on the day, and that brought the bullish commentators out in droves.

I heard a lot of chatter Tuesday about how we’ve reached a bottom in stocks, and how the worst is over for the financial sector and other severely beaten-down market segments.

And while I acknowledge that this sentiment could turn out to be correct, I say it’s way too early to start ushering in the bull.

The more likely scenario, in my opinion, is that yesterday’s big jump in stocks was another bear market rally. It’s the same kind we’ve seen during the past several weeks — featuring big one-day gains that are followed by a series of down days that take the major averages back to where they were before the rally.

One needs only to glance at the chart above of the S&P 500 to see what I mean. This ultra-choppy market has broken above the 50-day moving average (blue line), yet we are still way below the 1,405 "line in the sand" that we drew back in January.

I think we will see a lot more volatility and a few more big bear market rallies, followed by the now-familiar bear market sell offs before the cobwebs get cleared from this market.

In the meantime, big up days are your opportunity to lighten up on stocks (if you still own them). Remember that bear market rallies give you a chance to get out of stocks at a much better price than you had before the downtrend started.

Don’t be afraid to act in defense of your own money. Lighten up, and be proactive rather than reactive with your wealth.

Want to find out how subscribers to my Successful Investing advisory service lightened up their portfolios way back in January? All you have to do is click here.