‘Don’t be fooled’ by short rallies’, says strategist

Update 7/22 – The stock market slumped on the Friday with U.S. media companies shaving off nearly $130 billion market value. The tech-heavy Nasdaq dropped 226 points as Snap crashes 39% due to missed Q2 earning expectation. The Dow and S&P 500 also declined by 0.43% and 0.93%, respectively.

U.S. stocks continued to climb on Thursday for the third consecutive day, recording the best three-day Nasdaq gain since late May.

On Thursday’s closing, the Nasdaq composite (^IXIC) and S&P 500 (^SPX) had raised 14% and 10%, respectively, compared to their 52-week lows. Nasdaq’s heavyweight company, Tesla (TSLA), climbed nearly 10% after it surpassed Q2 earnings estimates.

However, one strategist reminded investors that he believed this is still a bear market.

Steve Sosnick, chief strategist at Interactive Brokers, told Yahoo Finance Live (video above) that, “don’t be fooled. It’s tough. Don’t be seduced by them [rallies],” as he pointed out that this week’s increase was just a part of the market where ’volatility works in both directions.’

“Let’s be honest about it. That’s why I like to call that socially acceptable volatility. The other term, which is not as polite, it was a bear market rally.” Sosnick explained that the 2-3% market bump is a common mathematical calculation, “We are still in a bear market and we still are seeing the fed as a headwind, and so to that extent, that becomes problematic and so we really have to see if this was a one or two day wonder.”

Monetary policy dictates the market.

Sosnick believed that the bearish market will persist longer and decline further as long as the Federal Reserve remains in its monetary policy position, “Right now, you really don’t get bottoms until or unless you see some sort of change in fiscal or monetary policy.”

However, “I don’t see that [new fiscal policy] right now,” he added.

Other indexes, Russell 2000 (^RUT) and Dow Jones Industrial Average (^DJI), closed green going into Friday as investors continued to buy beaten-down shares.

Story continues

Capitulation

Sosnick agreed with Sanford Bernstein’s recent release note that the market has not yet reached capitulation and that investors have not thrown in the towel. According to him, a simple way to tell when capitulation occurs is when investors have “given up all hope.”

“The real capitulation happens when people say, oh, god, i don’t even – don’t talk to me about this anymore,” Sosnick told Yahoo FInance, “None of us want that to happen. That’s not good for any of us at this table and watching. But that’s real capitulation.” and “I think we are away from that.” he said.

Rebecca is a reporter for Yahoo Finance.

Click here for the latest stock market news and in-depth analysis, including events that move stocks

Read the latest financial and business news from Yahoo Finance

Download the Yahoo Finance app for Apple or Android

Follow Yahoo Finance on Twitter, Facebook, Instagram, Flipboard, LinkedIn, and YouTube