Cinderella Bull Market

An illusory market rally.

Reporting on the Dow Jones’s comeback from a (March 9) 12-year bear market low, E.S. Browning wrote in the WSJ:

Stocks continued their rally Thursday, pushing the Dow Jones Industrial Average up 21% from its recent bottom — a new bull market by a common Wall Street definition. [A bull market is defined as a 20 percent rise from a given low.]

To many skeptical investors, it seems to be a Cinderella bull market, however: one that will turn out to be an illusion when the clock strikes midnight.

For the moment, the rally looks powerful, a great relief to those investors who are hoping the worst pain is over. … Many money managers and analysts worry this could turn out to be a temporary rally in a longer-running bear market. They see signs the gains are fueled largely by short-term investors who want to ride the rally but are poised to jump out at the first sign of trouble.

The Associated Press reported:

“analysts are still hesitant to call the end of the bear market — there is a phenomenon known as a bear market rally that can quickly collapse in an uncertain economic environment,”

and quoted the chief operating officer at West End Financial Advisors, Kevin Kramer:

“Just because things aren’t getting worse doesn’t mean they’re getting better. … You stopped the flow of blood out of my body, but it doesn’t mean I’m going to survive.”