Stock Market Bull Rally Could Turn Into ‘Bloc’ Of Red


Simpler Trading Team

4 min read

Bulls are making a run for the money this week as the stock market continues its upside revival.

In this market volatility, traders are taking advantage of any opportunity when the market shows clean signals for a shift in momentum.

Traders don’t want to be on the wrong side of this stock market bull rally any more than tourists running with the bulls in Pamplona. It’s all a rush of emotion and energy until the bulls start to turn on the sightseers.

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Stock market bull rally mirrors 2008 chart signals

Traders don’t seem to be afraid of this stock market bull rally.

The Volatility Index (VIX) dropped from a recent high of 33 on Thursday to 28.59 this morning. The VIX – or “fear” index – anticipates market volatility over the next 30 days.

A slight increase in the VIX by midday didn’t stop the market from continuing to rally.

In the market today, the Dow spiked by 825 points in the last hour of trading, followed by sustained rallies in the Nasdaq and S&P 500. All three indexes were trading at near or over 3% on the day.

How long will this rally last?

That’s the million dollar question that requires almost an hourly reassessment as market influences change from economic data such as inflation numbers to jobs reports to the next round of fast-talking speeches from Federal Reserve (Fed) officials.

None of that seemed to scare market participants as the three major indexes rallied from lows of the year to post the largest two-day gain since 2020.

The stock market bull rally may be a burst of energy that could stampede unsuspecting traders.

Keep in mind that any number above 20 on the VIX is still considered high volatility.

Stock market rotation still leaning toward bearish

Sam Shames, Vice President of Options at Simpler Trading, pointed out that recent stock chart internal signals have been “disgusting” with only 3% of S&P stocks charting above the 50-day simple moving average (SMA).

“This continues to imply exactly what we have been noting,” Sam emphasized. “There is no rotation under this market. Everything will either go green or red as a bloc. This is bearish.”

The past two days of trading have demonstrated how the market – indexes, sectors, stocks – can go green – rally higher – all at once.

His anticipation is that this “bloc” movement is signaling a harsh loss market-wide.

Sam’s biggest concern is price support and overseas markets.

He pointed to the 2008 U.S. stock market losses as a correlation to what is happening now.

“This should be the start of the final leg lower of the bubble popping, which unfortunately for bulls, tends to be the most impulsive panic-filled leg,” Sam said. “To me, this moment mirrors 2008. It’s funny because if I say this people will say that banks are fine, or employment is fine, or housing is fine.”

Sam is not one to mince words.

“Remember, these same people have missed everything going on so as time progresses their criticisms become more and more diluted as they have been right about nothing,” Sam said. “The reason I say this is like 2008 is because the price patterns almost mirror each other perfectly. The other reason I say it’s like 2008 is because of the systemic risk within the system at this time.”

While banks, employment, and housing may still be “fine” for now, Sam pointed out that the problems in the economy and the stock market this time around are at the country level.

“In 2008, banks and housing failed, and the governments stepped in to bail them out,” Sam said. “In 2022, countries will fail. Who can step in to bail out entire countries?”

Is there a savior for a 2022 market implosion?

Another important signal for 2022 that was not in play in 2008 is China.

“In 2008 China held up relatively fine and its economy remained an engine of growth

for the world,” Sam said. “In 2022, China is in the dumps and looking like a bubble imploding. China will not be able to support global growth this time around.”

“So, if this is like 2008 given the systemic risk events, what can we expect?” Sam asked. “From what I remember of trading in 2008 we can expect multiple attempts at government intervention to try and stem the selling and prevent panic.”

The Fed held a closed door board meeting on Monday and its next regularly scheduled meeting is set for Nov. 1-2.