Bear Market---How will I know I'm in one?

[tech/a]

Ive never seen it described?

How will I know Im in one BEFORE its over?
How do you define a bear market.
What and when is it different to a correction in a Bull Market.
Is it possible that there is a period of virtually NO Growth?
The market ranges for years.

Im interested in how all of those waiting for the "Inevitable" bear market will know when its upon us?

[doctorj]

It's a good question. I've always assumed we could apply our TA to the All Ords. Below is the all ords charted by short and long term EMAs.

[doctorj]

And here's another in less than than favourable conditions during 2003.

[RichKid]

So the assumption is that the AllOrds is the touchstone?

For example, if I trade only certain types of stocks in a particular segment they may run counter to the all ords, all ords could go down my segment (sector- may not be a GICS sector) would be ok. So although the net effect may be bearish we can still find profitable bull runs via stock picking or trend chasing. There will always be stocks going up. If you're exposed to bluechips you'll go down with the Allords trend as they make up that index.

[doctorj]

The all ords was posted as its the only index I had long term data on that was readily available. I agree, if you trade sectors that don't follow the all ords then using the all ords to judge a bull or bear market isn't perhaps the best index to use. A good example is oil. A large jump in oil prices should hurt the All Ords, but its not expected that oil companies would be effected in the same way.

That said, the bulk of the ASX's market cap is in these stocks and therefore in terms of popular public sentiment this will greatly determine if its "considered" a bull or a bear. To be ahead of the pack, you'll need to pick or create an index that's more appropriate to your specific situation. Outside of this, I don't think there's any other effective way to tell whether you're in a bear market or not. It's not like you'll wake up one morning, look at your terminal and go "WOW, helloooooo bears!"

[dutchie]

Does anyone have historical data/knowledge in regard to the statistics of bear markets in Oz.

When were they?

How long did they last?

How much did the market lose (approx.)?

[money tree]

I remember in 2000 some analysts said we were in for a period of low-neg returns that would last 8-12 years. The bulls laughed and laughed. Now 6 years on, we still dont have a bull market as defined by Dow theory.

Just because XJO is rising due to a resource boom doesnt mean the world is experiencing a bull market. Take out the resource sector and XJO has done nothing.

Why only ask to define only a bear market? Perhaps you should instead ask: "Why dont I already know what a bear market is? How will I know if Im a permabull with tunnel vision?"

We entered the bear market on May 25, 1999. This is the last time the Dow Transport index and Dow Utilities index made new highs together. It is a bear market unless it is a bull market.

Once these two make new highs, we can categoricaly say we are in a bull market. Until then, Japan is screwed. The U.S is screwed. Germany is screwed. China saving everyones bacon thus far, but every boom must bust......what happens when China busts like Japan did?

[tech/a]

Classic Dow Theory was the measure for both bull and Bear markets but in Dow's day the Transport industry in the States was the most powerful iinfluence.Today while powerful I dont know that its the benchmark it once was.
So to ask what defines a bull market is just as valid as bear.
As you say classically according to Dow we are in a bear market.

Either way why not trade the market as it unfolds.If that makes me a purpetual Bull and if I was trading long term short and the market kept making lower lows and that makes me a purpetual bear then so be it.
Does it matter?
If we take measures to minimise losses if and when the market tanks whats wrong with reaping the rewards of trading in a bullish manner?

My question is really related to when to change my trading methodology other than reaching maximum drawdown or a down turn in potrfolio ROR V Universe ROR.(Rate of return) or V All Ords ROR.

There are more stocks rising than falling and this has been the case for a while.
If there is a prolonged period where more stocks fall than rise would this not be a better indicator of market direction? or even a ROC or M/A of this.

[Mofra]

There are more stocks rising than falling and this has been the case for a while.
If there is a prolonged period where more stocks fall than rise would this not be a better indicator of market direction? or even a ROC or M/A of this.

Interesting point tech/a as I have seen a chart of the XAO with the a/d line drawn in and for a few weeks it was declining prior to the 87 crash (giving a semblance of advanced warning).
Given that perhaps only index funds even attempt to weigh their holding in proportion to a stock's influence on the index, the definition of more stocks falling than rising for a bear market may be a better (albeit still uncomfortable) fit as a definition.

[kooka1956]

Tech/a re. post number 8 "Why not trade the market while it unfolds".

So long as you are putting away some of those profits while you are trading and not rolling over everything into your next trades, I would agree.But their is danger in this comment in that the market sentiment can change instantaneously. Even stop/losses cannot help in a market which falls 40/45% in 30 minutes of trading, or should I say non transactions which happened in 1987. I think the time is near to put some of those profits in the bank and buy back in at lower prices. Regards KOOKA

[roofus]

perhaps a bit off topic, and call me niave, but I cant see any great fall on the horizon. Basically you can only invest in 3 areas, stocks,term deposits, property. With the low returns in regards to banks, and the new rate rises(with more to come) on the property side, I think people will continue to invest/gamble on the markets.

[tech/a]

Kooka.

I am refering to a bear market which I would expect to run for sometime,rather than a short term crash that could wipe out X% of your equity in a day.This is always a risk and can be minimised in many ways.Youve suggested an idea.

But what Im refering to is that some have mentioned that we should be trading differently in a bear market.
Im asking how do we define it so we can then trade suitably.

We could ofcourse trade a portfolio in that way now I guess awaiting the doom.All I think thats would do is increase losses as we trade against a strong up trend.

Its all well and good to say we should be doing this or trading that way but when you look at how to actually recognise and trade differently to the "Norm" its all of a sudden not clear cut.

[DTM]

Kooka.

I am refering to a bear market which I would expect to run for sometime,rather than a short term crash that could wipe out X% of your equity in a day.This is always a risk and can be minimised in many ways.Youve suggested an idea.

But what Im refering to is that some have mentioned that we should be trading differently in a bear market.
Im asking how do we define it so we can then trade suitably.

We could ofcourse trade a portfolio in that way now I guess awaiting the doom.All I think thats would do is increase losses as we trade against a strong up trend.

Its all well and good to say we should be doing this or trading that way but when you look at how to actually recognise and trade differently to the "Norm" its all of a sudden not clear cut.

:2twocents Just as a suggestion.

How about doing the reverse of a bull market. Look for down trending shares and looking for the opportunity to short it. If in bear markets share prices drop faster than they rise in a bull market, then using the opposite principles of a bull market means you should be able to make a faster return/profit.

Just a thought. ;)

[positivecashflow]

Just remember shorting a stock comes with unlimited risk! You may want to look at limited risk strategies such as buying puts instead which gives you the same profit potential but caps your loss to your entry debit.

[tech/a]

PCF
Sure you could do that but youll have time decay to work with plus you wont be able to buy puts on everything.We can place a stop just as we do going long.Pus we have the M/M spread.

Ive often thought of finding something like this as suggested.
I do know that the exit stratagy should not be the same as a long exit (The reverse of it).Entry can be the reverse but shorts behave differently to longs in that they generally fall quicker.

[DTM]

PCF
Sure you could do that but youll have time decay to work with plus you wont be able to buy puts on everything.We can place a stop just as we do going long.Pus we have the M/M spread.

Ive often thought of finding something like this as suggested.
I do know that the exit stratagy should not be the same as a long exit (The reverse of it).Entry can be the reverse but shorts behave differently to longs in that they generally fall quicker.

And most people aren't familiar with options and would prefer to stay with what they know. The unlimited risk is that the share will shoot up, up and up, but considering that in a bear market everything's heading south, the risks are more minimal. Also, shares moving up is generally slower than shares heading down. Besides, it would be kind of fun thinking the opposite. Resistance becomes support and vice versa.

[positivecashflow]

but youll have time decay to work with
Time decay can be managed (e.g. don't hold long options within the last 30 days till expiration where time decay is the greatest).


Entry can be the reverse but shorts behave differently to longs in that they generally fall quicker.

That is the beauty of a strong bear market. As options traders will vouch, the bigger and faster the move to the down side will reap more profits!



The unlimited risk is that the share will shoot up, up and up, but considering that in a bear market everything's heading south, the risks are more minimal.

There are enough gaps to the upside in a bear market to warrant people thinking about "what if I am wrong" (margin call people... margin call!). I know options trading is one that people think is a risky thing... but I would have to say that holding long stock is an even riskier thing...(i'll get shot by this I know but hey I can live with that...)

[RichKid]

Tech/a re. post number 8 "Why not trade the market while it unfolds".

So long as you are putting away some of those profits while you are trading and not rolling over everything into your next trades, I would agree.But their is danger in this comment in that the market sentiment can change instantaneously. Even stop/losses cannot help in a market which falls 40/45% in 30 minutes of trading, or should I say non transactions which happened in 1987. I think the time is near to put some of those profits in the bank and buy back in at lower prices. Regards KOOKA

That's why money management and positon sizing is so important, as TechA has mentioned so many times (and as he learnt to his cost early on). I'm fortunately just learning about it before I get wiped out. Fingers crossed! Funnily enough I don't mind a bad run for the ALLords atm since my portfolio runs differently.

Also, how can you say if a price is a 'lower price'? Is it low enough? It suggests bottom picking, today's lower price could be tomorrows high or it could be way above an eventual low. I'm just trying to draw out an issue as I've had similar problems and I'm still trying to deal with it via money mgmt.

[tech/a]

how can you say if a price is a 'lower price'? Is it low enough?

Exactly Rich.Or when is a Bear Market a Bear Market.

Poss.
Yes you can certaintly trade that way and If you held a fair size portfolio long term as some of us older trader/investors do there are a number of option plays we could use to protect in some way our portfolio's.

My point STILL remains how do I/we know when to adopt these stratagies??At what point can we all announce that we are in a bear market??
At what point and with what characteristics will we be able to recognise that this IS it and when its over ----the reverse?? Its now a Bull market---all I believe totally different to a Crash like 87 or 97

Id expect to see a chart like this.

[dutchie]

What are some of the signs to a bear market?

1. All ordinaries consistently decreases?
2. Bluechips level out and then start to go down?
3. Interest rates keep rising?
4. AUD decreases?
5. Brokers lower their prices? (as punters decrease)
6. Property fans become more animated?
7. Volume/price increase on high yield stocks?
8. Superfunds hold more cash?
9. Majority of punters panic sell?
10. Media concentrate on sensational negative news?

Irrespective of what the signs are, they will not all appear overnight. This means that the transition from a bull to bear market will develop over time. Most will not know that the transition is happening.

Perhaps in 6 months/ 1year it may be more finite and the weight of signs are conclusive.

I agree with Tech/a that most/all punters will not know when the bear market has begun so how can you trade accordingly.

What do you do?

Read commentries nationally and internationally (especially USA), evaluate your portfolio strictly and regularly as changes occur, be rational rather than emotional, diversify, take less risks & don't panic (sell).

If you feel that its still a bull market - trade it accordingly.

If you feel that its becoming bearish then perhaps sit on the fence and trade for a transition period.

If you think its finally bearish - trade it accordingly.

Just some thoughts for debate.

[roofus]

Dutchie- I see you use the word "punters" in your post do you think share trading is a gamble?

[tech/a]

Punters can be used as a description of any participant in any pass time.
Doesnt necesserily mean the connotation used in the horse racing industry.

Mind you I think most people "Punt" and call it trading.
Very few have any more than a form guide (Fundamental analysis) and a rough Idea of the odds (Fair Value).

[dutchie]

G'day Roofus

Thats a good question that everyone should consider.

1. Glib answer - "Lifes a gamble"
2. Politically correct answer - No - trading is a business
3. Realistic answer - Yes (for the majority of "investors"
-97% ???).
4. My answer - all of the above.
I believe there is a certain amount of luck involved (being at the right place at the right time etc.).
I trade on the assumption that I am making educated (researched) decisions (nearly all "investors" probably believe this irrespective of the quality of their education).

So I have used the word "punter" to mean investor/trader/businessman/mum/dad/kids.

Cheers

[Wysiwyg]

Ive never seen it described?

How will I know Im in one BEFORE its over?
How do you define a bear market.
What and when is it different to a correction in a Bull Market.
Is it possible that there is a period of virtually NO Growth?
The market ranges for years.

Im interested in how all of those waiting for the "Inevitable" bear market will know when its upon us?

Searching through old posts i came across this one from 2005.Is this a bear market now?What length of time of decline is the point of definition?
With mega "paper" losses recorded from many financial institutions and some going down it is only a matter of how long before the bootom is hit.

The answer is, you won`t know, but an estimation is as good as any of us (me) plebs can do.If Chinoindia collapsed i would say yes.

ps i remembered the economic clock

[Wysiwyg]

The updated comparative bear market graph below shows this one was a sharper decline but "possibly" shorter duration. That being if the low holds. Still bearish bias myself yet hard to believe 6500 will be revisited on the DOW.

[Buckeroo]

The updated comparative bear market graph below shows this one was a sharper decline but "possibly" shorter duration. That being if the low holds. Still bearish bias myself yet hard to believe 6500 will be revisited on the DOW.

Take a look at the link below - according to this, you may be overly optimistic at 6500.

In the report, there are a some charts (Dow Jones Industrial Average) with explanations. Would appreciate comment from the charting experts if they concur or not on the potential patterns forming.

Thanks in advance

http://www.financialsense.com/fsu/editorials/mchugh/2009/0802.html

Cheers

[moXJO]

This was sent to me back in April this year (was possibly around before that).
http://img444.imageshack.us/img444/5842/70452338.jpg


Chart 28 shows the most likely scenario currently for the Dow. The first rally got oversold after testing near 7,900 and now should retreat to support levels between 6,870 and 7,260, unless the market surges on Thursday’s FASB ruling on mark to market. In that case we could rally quickly to 8,300 and then set back to 7,260 or lower. Given that the rally was strong and steady on the way up, it is likely to be steady and strong on this correction, and we could see more towards the lower side of this range. Either way, we should have another rally that would test the strongest resistance—the down trend line in tops since the spikes in October that peaked at 9,800 and 9,650 and through the recent broad fourth-wave rally to 9,100. That resistance will hit between 8,100 and 8,300, depending on when we test those downward trend lines. Ultimately since this rally represents a broader Elliott Wave advance than the second- and fourth-wave rallies on the way down, then this rally should last longer—more like 4 to 6 months vs. more like 2 months—and 3,000 to 4,000 points instead of 1,800 to 2,100. We should at least see a bounce back close to the broader fourth-wave highs around 9,100. On the higher side we could see a 50% retracement of the 7,800- point loss on the way down toward 10,400. Given that the
market got so overdone on the way down, it is actually more
likely that the rally will be more persistent and head toward the higher end of the range, between 9,650 and 10,400. We will have to monitor overbought readings as we most likely continue to advance in the months ahead.
The current correction is likely to see support between 6,870 at worst and 7,260 at best. We will look to issue a second buy signal in that range in the coming days or weeks. The more critical resistance between 8,100 and 8,300 is likely to be tested in early or late April. That would represent a shorter-term sell signal for traders and more flexible investors. It is probable on our seasonal cycles in May to see a more substantial and lengthy correction back toward the likely lows in April again between 6,870 and 7,260. We are likely to see multiple advances toward 9,000 to 10,400 into June and July—and possibly into as late as September. Our strongest intermediate cycles both turn downward in late 2009, hence we don’t recommend being in stocks past July to September, depending on overbought readings by then. Oil, commodity, and emerging country stocks may continue to rise into late 2009 or even early to mid-2010 before joining the next global crash. As examples of indices in several areas to be focusing on, oil should be a good buy between $42 and $44, emerging markets at around $23 on the EEM, and China at $26 on the FXI and the financials between $7.20 and $8.00 on the XLF.