Today is a good day to point out the single biggest myth of a bear market; the myth that in a bear market stocks there will be not be significant rallies. Today the Dow gained about 500 points, and the S&P 500 gained more than 7% on the day. Clearly today was a day where the gains were extremely broad based and the market was full in buying mode. Does this mean that today’s signals the end of the bear market, or the beginning of a bull market? It most certainly does not.

If you look back at past bear markets, including the bear market that occurred in 2002 in the United States stock market, you will find that some of the largest point and percentage gains on a single day basis for both the Dow and the NASDAQ were during the midst of a bear market. A bear market rally is generally extremely short-lived, but it can be very powerful and leave investors feeling great about themselves for a short period of time.

The simple fact of the matter is that stocks never go in a straight line up or down, and those who try to read too much into the short-term momentum of the market are bound to be burned quite often. A bear market is prime territory for stocks to jump in a single day because those who are short sellers often cover and take their profit and the gains are exaggerated quite a bit because of this occurrence.

The next time you are tempted to think that a bear market cannot have a major rally remember that bear market rallies are extremely common, they are just different than a bull market rally, which is far more sustainable. Only time will tell if the current rally is a bear market rally or the beginning of a bear market bottom, but we’ve seen this kind of action before and I caution investors against chasing the market in either direction.

Every time the stock market goes to its lows and rallies nicely there are a few more analysts on Wall Street who race to be the first to say that this is the bottom and investors should put their money to work right away. One of these times they will be right, but up to this point there have been a lot of analysts who have been incorrect countless times. Barry Ritholtz, of The Big Picture Blog, wrote a very interesting post a few days ago that showed just how many bear market rallies there have been since October of 2007. Looking back on each of these events I can plainly remember the financial network media declaring that this was the end of the bear. Remember Bear Stearns and its shocking deal in March? At the time the news media was saying this was terrific news because it was signaling an end to the run on banks. Looking back on that time we see that the S&P 500 was about 35% higher than it is now and the run on banks was only beginning.

Bear market rallies are typically very strong and quick rallies. The thing that makes them so dangerous is that they move so quickly and they make people believe they are missing out on something big. In reality if you look back in history, many of the days the stock market has had its biggest gains were during the worst of bear markets. What is the lesson here? The lesson is that bear market rallies always have lots of power behind them, and there are always plenty of analysts rushing to call the bottom in the stock market. Please remember when you are investing that in the best of bull markets stocks tend to gain gradually and consistently rather than jumping and then plunging constantly. Be very wary of dangerous bear market rallies and the analysts who are “sure” that the bottom is in.