S&P 500, Nasdaq And Dow, This Is A Bear Market

We are in a bear market.

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The first time I heard a TV presenter say, an index was in a bear market because it had fallen 20%, I couldn’t believe my ears. I understand why they said it because most presenters have no idea what they are talking about. They get up early, get to the studio, read the autocue and then go home. They have no idea how the market works, have no time to absorb the news, they just read it out.

The statement sounds good, just like it sounds good to say “the price is 5 times less,” but it is nonsense.

Telling someone who has just lost 20% of their portfolio they have just entered a bear market is worse than no use at all. The value is to be able to say, “this is a bear market” when prices are only just starting to fall.

If you think you are in a bear market, you can sell and if you are right, you avoid losses. Being told there is a car coming after you have been run down is no use at all.

So let’s look at a bear market:

The S&P 500 chart shows we are in a bear market

Credit: ADVFN

How about this one:

The Nasdaq – another chart in clear bear territory

Credit: ADVFN

A bear market is when the tendency is down. A bull market is when the tendency is up. Yes, but there is more to it than that. This is how you tell the difference.

Here’s how you tell the difference between a bull and a bear market

Credit: ADVFN

The tendency doesn’t have to be disastrously directional, but the tendency clearly works in or against you depending on how you are positioned.

So while the market remains very high it is down to investors and traders alike to decide if they are in a bull or bear market and to me it’s clear we are in a bear.

We are in a bear because the tide of liquidity is about to reverse or at least stop and that alone will drag on stocks. Where that bear leads is unknown, but we would hope that the regulators will want no horrible surprises, so that the bear market will be shallow, but nonetheless the tendency is down and that is a hard reality to make money in, especially if you hope to make money in stocks that were inflated by the huge influx of money that has been created in the last two and a bit years.

The Dow will have entered a bear market at 37,000, but the media will say at 30,000 it has entered bear market territory. While it is much easier to predict the past, the game is to call the future.