Stock market rebounds: Is it a relief rally or fresh bull trend explained with 5 reasons

The Cubs treated that as a bullpen session, after which the decision was made to move him back to the rotation. Click here to join us on Telegram for trading and investment-related how to buy wink coin videos, daily market updates, details on upcoming IPOs and more. It also plans to export its EVs to mature markets beyond South Asia in a couple of years.

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  • It’s essential to view them in the broader context of the market’s overall performance.
  • One such indicator, the National Association of Active Investment Managers (NAAIM) Exposure Index, fell to a reading of 27.33, which ranks in the 9th percentile (8.7%) since the inception of the indicator in 2007.
  • This sector has quite naturally cooled off due to a sharp increase in mortgage rates.

Fundamentally, various factors have become increasingly supportive of a strong narrative regarding a potential “soft-landing”. Second, inflation appears to have peaked and is falling at a significant pace. Third, after fully absorbing hawkish Fed policy and rhetoric, market concerns surrounding Fed policy are likely to recede into the background for some period of time. Based on several of short-term “oscillator” indicators utilized in technical analysis, the S&P 500 index became quite oversold during the sharp sell-off that took place between August 16 and September 6.

Relief rallies occur in various asset classes like stocks, bonds, and commodities. Market participants price in many different types of events, such as the release of a company’s quarterly earnings report, election results, interest rate changes, and new industry regulations. Any of these events can trigger a relief rally when the news is not as bad as expected. Relief rallies happen in many different asset classes such as stocks, bonds, and commodities. Some of the time, even a lower-than-expected loss can touch off a relief rally, or they may be triggered by a more positive tone on a company conference call with analysts.

Relief Rally For U.S. Stocks Likely

On the other hand, a relief rally might potentially be the start of a new upward trend, although this is not assured. As a relief rally example, stocks tumbled in August 2015, amid concerns about an economic slowdown in China, at the time the world’s second-largest economy. A devaluation of China’s currency also weighed on global markets, as many feared the slowdown could spread to the U.S. Today, pharma and other PSU stocks have witnessed strong buying interest on Dalal Street.” Near the bear-market rally’s peak, market analysts including Bank of America equity strategists warned the relief gains were not in line with deteriorating investing fundamentals such as rising interest rates. The research firm said it expects the S&P 500 to rally between as much as 9% from current levels to the range of 4,400-4,600 as a period of positive seasonality takes hold in the market.

The Fed “had to focus investors to look past the current numbers … otherwise it would have taken years for the S&P to get back to 3,000,” said Andrew Brenner, head of international fixed income at NatAlliance Securities, in a note. The S&P 500 is up 37% since its late March close as of Monday and the Nasdaq Composite is near a fresh record after a surge that has seemingly ignored widespread economic upheaval and uncertainty over the coronavirus pandemic. Access comprehensive research and free trial news subscriptions available through IBKR’s trading platforms.

  • For example, if a new Covid wave were to hit the country, airline stocks could fall on the possibility of fresh lockdowns.
  • Some popular indicators used by positional traders include moving averages, Fibonacci levels, and support and resistance levels.
  • However, OPEC (Organization of the Petroleum Exporting Countries) agreed to cuts in production in November 2016, igniting a relief rally in crude prices.
  • This positive news may involve the financial health of companies, economic indicators, geopolitical events, etc.

Such rebounds have also featured strong economically-sensitive cyclical stocks, which have struggled to mount a consistent rally this time around, the bank said. Numerous other sentiment and positioning indicators have signaled that the US equity market reached negative extremes, from a behavioral perspective. One such indicator, the National Association of Active Investment Managers (NAAIM) Exposure Index, fell to a reading of 27.33, which ranks in the 9th percentile (8.7%) since the inception of the indicator in 2007. For those that would like to apply a similar analysis on individual stocks, you can use the thinkScript code above, and modify for the appropriate number of bearish weekly closes.

Understanding a Bear Market Rally

However, it’s critical for investors to be cautious, as these rallies can be temporary if they are driven by speculative trading rather than fundamental improvements in the economy. A relief rally is a sharp and often short-lived increase in the price of an asset or security, typically occurring after a period of decline or negative news. The rally is often seen as a sign of a potential turnaround or reversal in the asset’s fortunes, and may be driven by a variety of factors, including technical analysis, changes in market conditions, or positive news or developments. A relief rally is a respite from a broader market sell-off that results in temporarily higher securities prices. Relief rallies often occur when anticipated negative news winds up being positive or less severe than expected. A relief rally is a reprieve from a more extensive market sell-off that outcomes in briefly higher securities prices.

Jain went on to add that recent sell off was mainly due to some particular Nifty heavy weights like Reliance Industries, Infosys and HDFC Bank, which widened the sell off levels in Nifty 50 index. Otherwise, most of the quality stocks were able to seep through this sell off phase. Investors who keep focus on the fundamentals can expect, and even profit from, bear-market rallies without assuming the next bull market is at hand how to be a good poker player and paying a heavy price when the bear returns instead. Adam Hayes, Ph.D., CFA, is a financial writer with 15+ years Wall Street experience as a derivatives trader. Besides his extensive derivative trading expertise, Adam is an expert in economics and behavioral finance. Adam received his master’s in economics from The New School for Social Research and his Ph.D. from the University of Wisconsin-Madison in sociology.

Sentiment Reached Bearish Extremes: A Bullish Behavioral Set-Up

A relief rally in the business or finance industry is a strategic event or occurrence commonly used to describe a situation where the price of a stock or a market increases after a period of decline. This is most times a response to a piece of positive news following a somber mood cast by events such as a bearish run or negative economic indicators. Perhaps the company released a better-than-expected earnings report or there’s been a significant development within the industry or the wider economy. This provides an opportunity for investors to strategize their investments, possibly purchasing assets at lower prices to benefit from the impending upward swing. On the other hand, a relief rally can provide an exit opportunity for those looking to cut their losses or secure their profits.

Accenture results leave IT investors between hope and despair

For example, if a new Covid wave were to hit the country, airline stocks could fall on the possibility of fresh lockdowns. However, if the new wave turns out to be less severe and lockdowns best day trading computer setup are not introduced, it could lead to a relief rally. It is typically used to refer to a short-term move, lasting days or weeks, in contrast to a bull market, which is a longer-term trend.

All of these indicators of economic activity are, therefore, currently supportive of a “soft landing” narrative. The term “rally” is used loosely when referring to upward swings in markets. The duration of a rally is what varies from one extreme to another, and is relative depending on the time frame used when analyzing markets.


Sucker rallies are easy to identify in hindsight, yet in the moment they are harder to see. As prices fall, more and more investors assume that the next rally will mean the end of the downtrend. Eventually, the downtrend will end (in most cases), but identifying which rally turns into an uptrend, and not a sucker rally, is not always easy.

Before trading, clients must read the relevant risk disclosure statements on IBKR’s Warnings and Disclosures page. You can use technical analysis to find these stocks, or you can even screen for them using fundamental criteria. However, a relief rally can provide an opportunity for savvy investors to make some good profits.

They said that US shut down is falling on 1st October and hence market is expecting that US government would definitely try to avoid that and this would be a big trigger for the global markets. Apart from this, peaking out US dollar and bond yield may also trigger fresh buying in equities by FIIs. At some point during the downturn, an orderly retreat typically turns into high-volume panic selling. Bargain hunters grow convinced capitulation is at hand, signifying at least a short-term market bottom. A rally may be caused by a number of factors, including positive news about the company, an industry, or the overall market. A rally may also be caused by technical factors, such as a breakout from a resistance level or a period of consolidation.

Price action begins to display higher highs with strong volume and higher lows with weak volume. A rally is caused by a significant increase in demand resulting from a large influx of investment capital into the market. The length or magnitude of a rally depends on the depth of buyers along with the amount of selling pressure they face.

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