(This story is for CNBC Pro subscribers only.) The biggest three-day rally for the Dow in almost 90 years is giving investors hope that this bear market has bottomed, but Barclays noted a bounce like this is usually not sustainable while crawling out of the depths of a sharp rout. The Wall Street firm pointed out that since 1937, eleven bear markets experienced a "head fake" rally, meaning stocks went up, giving investors hope of a rebound, but eventually spiraled downward again when the real economic pain was realized. "Bear market 'head-fake' rallies are not uncommon," Barclays U.S. equity strategist Maneesh Deshpande said in a note to clients. "So if the SPX goes back down below 2237 we would consider this ~18% rally as a "head fake" since it wasn't the beginning to the actual recovery." Since February, stocks have experienced a dismal sell-off, diving into bear market as investors fear the economic fallout of the coronavirus crisis. But after Thursday's 1,300-point gain for the Dow and 6% rally for the S & P 500, both averages are up more than 20% in the past three sessions. While some investors are cheering the bottom of the market is in, Barclays said beware of the fake out. "We believe medium-term risks are skewed to the downside after this rally," said Deshpande. The S & P 500 has rebounded to the 2,630 level, but if it falls below its Monday low of 2,237, this three-day stretch was just a tease, according to Barclays. Stocks cratered on Friday, with the S & P 500 down 3.5%. Most recently, during the Global Financial Crisis, the S & P 500 rallied as much as 24.2% during its "head fake rally," only to decline again at the start of 2009. "After the initial shock in the fall of 2008, equities treaded water only to sell off in 1Q2009 as the extent of the credit freeze to the real economy became clear," said Deshpande. While equity markets have rallied sharply this week on a stimulus bill from Congress, the length of the economic quarantine and the ultimate economic damage of the virus are still unknown, said Barclays. "Still now that the market is on guard and knows that policy makers are fully engaged any further downside is unlikely to be as volatile. Thus similar to 2008, VIX has declined from 2008 to around 60 currently," Deshpande added. "Although it has remained sticky even as the market has rallied that is simply because actual volatility in the market remains quite elevated." — With reporting from CNBC's Nate Rattner and Michael Bloom.
