Sunday Musings: The Shortest Bear Market

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Whenever stock prices correct, or the major indexes slide into bear market territory, a number of predictions are bound to follow as to its duration. Random Roger wrote a tongue in cheek piece on that subject titled “The shortest bear market in history:”

Wall Street traders and strategists alike are breathing a huge sigh of relief now that the bear market of 2008 is now over.

Investors may recall that the market officially closed in bear market territory on July 2.

The turn around in Thursday’s holiday shortened trade signals that the bear is now officially over.

Said one trader reached on Thursday “I’ve never seen so much excitement at any point in my 13 months in the business.”

A spokesman for another firm said his company plans to reinstate their original year end S&P; 500 target of 1660, a 30% gain from here. The spokesman noted that 30% is a normal bounce off of a bear market bottom.

Ahem. AHEM.

Any trend, whether bullish or bearish, has to run it course before a turnaround can occur. Most investors, however, don’t have the patience to wait but instead follow the urge to take a stab at buying on dips, which may work in bull markets but has proven disastrous during bear scenarios. Of course, this course of action of buying early is supported by the brokerage industry for nothing but selfish reasons.

If you are following trends, you will know when the bears have run out gas and the time arrives to be bullish again. You will not buy at the exact bottom, since we need to see its formation before we can measure and identify it, but somewhere within 10% of it. While that will lessen your potential profits on the upside, it will at the same time avoid a bunch of whip-saws or portfolio losses caused by jumping in too early.

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Comments 2

  1. Ulli,

    Could yu publish for us in each of the past bear mkts while yu have been in biz the net loss that yur trend incurs from the top where the S&P; heads south (down) where yur trend line shows a bear til where yur trend line indicates to get back in. So basically I’d like to see what percentage is lost following trend in each bear mkt. No one picks tops for sure or few do however, what is the percetnages saved or loss from total net.

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