The U.S. stock market is bouncing back after one of the most violent drawdowns in decades — a sell-off that wiped trillions of dollars off the board and left investors on edge. The fear was palpable. Margin calls, portfolio rebalancing, and sector rotations accelerated as the S&P 500 approached bear market territory, coming within a whisper of a 20% drop from its highs.
The big question at the time:
Are we just getting started with a prolonged bear market? Or is this a short-term panic with a quick recovery on the other side?
Fast forward to today, and we’ve seen a clear change in sentiment. The S&P has clawed its way higher. Volatility has cooled off. Investors are breathing a tentative sigh of relief.
But are we in the clear? Not quite.
What we’re seeing right now could be the beginning of a V-shaped recovery, or it could be the latest chapter in a volatile, sideways market — or worse, a dead cat bounce that ultimately gives way to deeper losses.
Let’s break this down.
Understanding the Recovery Patterns: V-Shaped vs. Dead Cat Bounce
First, some definitions:
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A V-shaped recovery occurs when markets rebound sharply after a significant drop — think of the letter "V". There’s a swift decline, a bottom, and then an equally fast recovery. This is exactly what happened in 2020, following the COVID-induced crash. Markets bottomed in March and recovered their losses within about six months.
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A dead cat bounce, on the other hand, is when a market experiences a short-lived recovery in the middle of a longer-term downtrend. It gives investors false hope, only to reverse again as the broader bear market resumes.
Knowing which of these we're experiencing is critical. It influences everything from asset allocation to risk management to how investors should be thinking about opportunity.
How Do We Know Which One We're In?
To answer that, we’ll turn to a mix of technical and quantitative signals — five reliable indicators that have historically provided early warnings about the strength (or fragility) of market rallies. These include a mix of momentum indicators, which tell us about the speed and direction of price action, and breadth indicators, which reveal how widespread the movement is across the market.
Let’s go through each of them.
Indicator #1: The 200-Day Moving Average (Momentum)
The 200-day moving average (MA) is a key long-term trend indicator. When markets are above it, they’re considered to be in a general uptrend. When below, the opposite is true.
Right now, the S&P 500 has just broken back above its 200-day MA for the first time in weeks. This is significant. Historically, regaining the 200-day MA after a deep correction has often marked the beginning of sustained recoveries — especially when other signals line up.
✅ This is a bullish checkmark in favor of a V-shaped recovery.
Indicator #2: The Golden Cross (Momentum)
The golden cross occurs when the 50-day moving average crosses above the 200-day moving average — signaling that short-term momentum is strong enough to shift the longer-term trend.
It’s the inverse of a death cross, which we saw back in mid-April as the market was tumbling.
Historically, golden crosses have a good, though not perfect, track record of predicting sustained gains. They often occur just after the true bottom and act as a confirmation of trend reversal.
As of now, we haven’t seen a full golden cross yet — the 50-day MA is curving upward, but it hasn’t broken above the 200-day MA.
❌ This one hasn’t triggered yet, but the setup is forming. A golden cross in the next few weeks would be a strong confirmation.
Indicator #3: % of Stocks Above Their 50-Day MA (Breadth)
This indicator helps answer a key question:
Is the rally being driven by just a few big names, or is the entire market participating?
When a significant percentage of stocks are trading above their 50-day moving averages, it means the rally is broad — not just tech giants or defensive plays, but across sectors and market caps.
Right now, that percentage is rising rapidly — a clear sign of improving breadth. But we typically look for a move above 80% to count this as a strong signal.
In past recoveries — 2019, 2020, 2023, and again in 2024 — we’ve seen this percentage surge well above 80% when the market turned a corner.
❌ Not quite there yet, but accelerating fast. This is one to watch closely.
Indicator #4: Advance-Decline Line (Breadth)
The advance-decline (A/D) line tracks the number of advancing stocks minus declining stocks each day — then plots the cumulative value over time. It helps us see whether the rally is gaining internal strength or weakening beneath the surface.
Since the mid-April low, the A/D line has been steadily rising, and just recently it broke to a new 100-day high — a very encouraging development.
✅ This suggests that a majority of stocks are participating in the rally, not just a handful of mega-caps.
That’s another solid mark in favor of a true recovery.
Indicator #5: The SWAG Indicator (Rare Breadth Signal)
This final indicator is less well known but incredibly powerful. It looks at the 10-day moving average of the percentage of advancing stocks. If that number shoots from below 40% to above 61.5% within a 10-day period, it historically marks the start of new bull markets.
Why does it work? Because it captures sudden and decisive reversals in broad market participation — not just prices, but the actual number of stocks turning positive in tandem.
This signal just triggered at the end of April, and it has only occurred a handful of times in the last few decades. In nearly every instance, markets were significantly higher 3, 6, and 12 months later.
✅ This is a rare, high-conviction signal in favor of a sustained recovery.
Summary: What the Indicators Are Saying
Let’s tally it up:
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✅ Above the 200-day MA — Bullish
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⏳ Golden Cross not yet, but 50-day MA is turning up
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⏳ % of stocks above 50-day MA is rising, not at 80% yet
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✅ Advance-Decline line hitting new highs
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✅ SWAG indicator triggered — rare and historically strong
So we have three out of five indicators already triggered and two more trending in the right direction.
This doesn’t guarantee a full-blown bull market — but it does tilt the probabilities heavily toward the idea that this isn’t just a dead cat bounce. If the golden cross confirms and market breadth continues to expand, this could be the beginning of a more sustained upside move.
Investors should remain cautiously optimistic. The weight of evidence is starting to favor a recovery — but as always, risks remain. The macro picture, interest rate policy, inflation, and earnings still matter. But based purely on technicals and historical precedent, this recovery has real potential.
We’ll continue tracking these signals closely and providing regular updates as the story unfolds.
Disclaimer: I want to make it clear that I am not a financial advisor, and nothing I say is intended to be a recommendation to buy or sell any financial instrument. Additionally, it's important to remember that there are no guarantees or certainties in trading or investing, and you should never invest money that you can't afford to lose.
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