The Necessary and Sufficient Conditions for a Bull Market Call

I’m hearing a whole lot of chatter amongst the financial pundit class about this current rally being the start of a booming new bull market. And while I agree that the nearly 25% climb by the S&P 500 off its March low has been extremely impressive, to proclaim that we now are in a bull market is just way too optimistic — and way too premature.

Could this be the start of a new bull market? It could, but frankly, I don’t think it is.

Take a look at the chart below of the S&P 500 and you’ll see that we still are well below the long-term, 200-day moving average (red line).

I think that before we start ushering in the bulls, we ought to keep in mind that we are still nearly 100 points below where we were at the start of 2009.

In my humble opinion, I still think the recent move higher in stocks is a bear market rally. It’s a strong bear market rally, I grant you, but a bear market rally nonetheless.

So, before we go calling this bear a bull, we at least have to see the S&P 500 break above its 200-day moving average. If this happens, it will be a necessary, but not yet sufficient condition for making a new bull market call.

In order for us to make a true bull market call, we must first break back above the 200-day average (the necessary condition) and then we must see a sustainable rally from there for more than just a few days or even a few weeks (the sufficient condition).

If and when we satisfy both the necessary and sufficient conditions for making a true bull market call, I shall be the first one to ring the bell and sing the praises of the new bovine market.