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Bulls on Parade? Investors were drawn to the border of bear market territory like a moth to a flame. And just when they were about to cross into bear market territory below 3,855...

By Steve Reitmeister

This story originally appeared on StockNews - StockNews

Investors were drawn to the border of bear market territory like a moth to a flame. And just when they were about to cross into bear market territory below 3,855 a rally ensued late Thursday. That got further extended Friday rising all the way to 4,023.89. Is this just a bear market rally or truly the end of this dramatic 4 month correction? That discussion will be at the heart of today's POWR Value commentary. Read on below for more….

(Please enjoy this updated version of my weekly commentary from the POWR Value newsletter).

Let's wind the clock back a week to our previous commentary from 5/6: 2 Divergent Paths for the Stock Market from Here.

This was a lengthy piece talking about what it would mean to break below 3,855 into bear market territory versus bouncing at that level with resumption of the bull market.

Not surprisingly stocks got ever so close at 3,858 before support kicked in leading to a +4.3% rally into Friday's close.

Unfortunately, this support is NOT proof that the bear market threat is over. On the other hand it very well could be the obituary for the nasty 2022 correction.

This brings us to a new fork in the road with 2 potential paths. Let's review those possibilities that are nearly equal likelihood in my book:

Bulls on Parade: FOMO Rally

Imagine a 2-3 weeks long rally where stocks just climb higher each day. Bears will hold out at first. But bit by bit will start giving into their FOMO fears.

Plus all the dry powder in cash starts to come off the sidelines.

It would not be unusual for stocks to advance 10-15% in that time frame and crossing back over all the key moving averages leaving no doubt that the bull market was back in charge.

Before you get too excited, we need to review the other equally plausible scenario that will temper your enthusiasm…

Consolidate Here and Delay Bull/Bear Conclusion

Remember that relief rallies are typically +3-5% before testing lower once again. And that's pretty much the size of the bounce we got Thursday afternoon through end of Friday.

So it's not hard to imagine that we spend time in a trading range between the border of bear market territory at 3,855 and 4,100.

Meaning that bulls and bears battle it out a bit longer before making the final determination if we do tumble into bear market territory or bull re-emerges.

We all would prefer the former choice. And can even make logical presentations showing why that is the more likely outcome.

Unfortunately we do have to appreciate that the combination of high inflation and hawkish Fed is not the most stock friendly environment.

Not a guarantee of a bear market…but fertile soil that could support the growth of bearish conditions.

Add it all up and we are not that far off the divergent paths discussed last week. And that keeps us in wait and see mode.

If the bull extends from here, then we have some uber-attractive stocks still in the portfolio that shined the last two days and would blossom even further in that environment.

Any stock that does not quickly shed its former red arrows will be replaced with stocks with greener horizons.

If we do devolve into a bearish market, then we know how to get more defensive as laid out last week.

We value investors typically understand that patience is a virtue. And you will need to lean into that reservoir of patience to make it through this next leg of the market.

Stay calm and carry on!

What To Do Next?

If you'd like to see more top value stocks, then you should check out our free special report:

7 SEVERELY Undervalued Stocks

What makes these stocks great additions to any portfolio?

First, because they are all undervalued companies with exciting upside potential.

But even more important, is that they are all Strong Buys according to our coveted POWR Ratings system. Yes, that same system where top-rated stocks have averaged a +31.10% annual return.

Click below now to see these 7 stellar value stocks with the right stuff to outperform in the coming months.

7 SEVERELY Undervalued Stocks

All the Best!

Steve Reitmeister
CEO & Editor of POWR Value trading service

SPY shares closed at $401.72 on Friday, up $9.38 (+2.39%). Year-to-date, SPY has declined -15.16%, versus a % rise in the benchmark S&P 500 index during the same period.

About the Author: Steve Reitmeister

Steve is better known to the StockNews audience as "Reity". Not only is he the CEO of the firm, but he also shares his 40 years of investment experience in the Reitmeister Total Return portfolio. Learn more about Reity's background, along with links to his most recent articles and stock picks.


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