The Best Rallies Happen In Bear Markets

The bear market of 2008 is still with us, and despite the recent spat of bullish days for stocks, we are still way below both the short- and long-term trends in the overall market.

As you can see from the chart below of the S&P 500 Index, the broad measure of the market is still trading well below both its 50-day (blue line) and 200-day (red line) moving averages.

One thing to note, however, is that SPX may have put in a short-term trading bottom in November. This potentially could be a meaningful low for stocks, and one that may have launched the next phase of buying that could result in a continuation of what we’ve seen during the past couple of weeks.

Now, even if the long-term outlook for the market is still lower — as I suspect it will be — you have to realize that most of the market’s best rallies have occurred during bear markets.

My friend "Tokyo Russ" sent me the following data-packed chart on historical bear market rallies from 1929 through 1933.

As you can see, within the overall downtrend in stocks during the worst of the Great Depression years, there were also some really big market rallies.

This is the pattern we are likely to see during the next several years, as stocks attempt to come out of the funk they’ve been in for so long. Hey, a recovery in the markets is never easy, and it’s never pretty. It’s almost always fraught with peril, and picking your spots as an investor has never been trickier.

Having said that, however, there are ways to pick your spots and make some very sizeable short-term profits. How do I know this? Well, because that is exactly what we are doing in my ETF Trader advisory service.

In fact, during the past several weeks we’ve banked big profits in many of today’s fastest moving sectors. Some of those sectors have moved lower, but thanks to inverse exchange-traded funds (ETFs) we’ve capitalized on the downward trend. We’ve also used leveraged ETFs to really add some kick to our portfolio.

If investing for gains in this volatile market appeals to you, then you have to check out my ETF Trader service by clicking here.