Still working on the First Principle of Successful Stock Market Investing, that of always knowing what market we are in, we described the picture of the Bull Market last time, and also gave a site or two where one could go and visually see just what a bull market looks like.
In the very same way, we can readily identify and describe just what a Bear Market looks like. Taking each element for the description of a bull market, we can simply reverse them, and we have the fully developed picture of a bear market.
The Bear Market, by Wall Street definition, and it is a good working description, begins with a market index, and again we’ll use the S&P 500, that is generally down-trending in price. Charting price data for the 500, you can note a point in the past where the price turned down, and never exceeded that past price high. The index then continues downward, marking out successively lower highs and lower lows. The down-trending price will typically be below its own 50-day moving average, and that moving average will be in a down-trend as well. The down-trending 50-day moving average will be beneath the 200-day moving average of the index price, and that 200-day moving average will also be in a down-trend.
We’ve not had a circumstance like that since the last Bear Market, which, in 20/20 hindsight, ended on Monday, March the 9th of 2009. It’s been more than 6 years now. But if you have access to a means of graphing back-data, one could chart 2008 and the first couple of months of 2009, and see precisely what I have described.
Since a bear market is when stock prices are generally in decline, one would naturally want to avoid, and be out of the market, during a bear. However, that is far more easily said than done, as the question then becomes, when does one sell, so as to be out of and avoid a bear market? If a trader or investor is primarily concerned with capital growth or appreciation, that becomes a very large issue.
Let’s tackle that next, as there are several things that can be said about that subject, and one of those solutions just might suit you best.
Here’s to your successful investing!
Harold F Crowell