With the recent volatility in the markets and the very extreme price action there is a level of confidence that has become shattered. That is evident in the charts of many stocks across the landscape, and indicative of the indices on numerous timeframes. But we also see this confidence flagging in sentiment too, and for the six year bull market dips have been buying opportunities, but not this time around. For the longest time we could always defer to the longer term charts to justify staying long, but now those have rolled over and there is a new trend forming, and it is one where the bear will start to growl.
We have had stocks on a rollercoaster ride of late, but that has been of no consequence. Lower highs, lower lows are bearish patterns, and if stocks can only rally up to resistance and fail, well there is just too much overhead supply. While the Earth seems to shake at the start of a bear market (probably the sound of those trying to rush for the exits at the same time!), it’s quite clear gravity takes hold of price when the crowd gets into a risk off mode.
But it’s only a 10% correction, you say? That’s true, and the textbook rules say 20% is a bear market, but by the time you are there stocks are already down a ton. Today, markets move with laser-fast speed, and when emotional outbursts happen we can render any support levels useless. Let’s talk about what a bear market truly is. It is 100% psychological, the trepidation of investing capital when there is great risk of losing it. Institutional sponsorship is gone, companies are buying back less stock and putting up a tent for the coming storm. I like to define a bull market as one that is going up, while a bear market is one that is not going up. Notice, I didn’t say a bear market is one that goes down – see the difference? Hence, a bear market could be one that just goes sideways. How frustrating is that to an investor, taking two steps forward and then two steps back, wasted energy and just flopping around capital. No trends, no patterns and high opportunity cost.
We had a market like that back in the late 1960’s/early 1970’s, my dad was a stockbroker back then. It was extremely hard to make a buck, clients were nervous, brokers were frustrated and the prolonged bear market seemed to drag on so long, it seemed it would never end! But the great thing about a bear market, is that if you keep your senses and wits in check, you’ll be around for that fresh new bull market cycle.
For now, this bull is old, tired and ready to rest. Louise Yamada, a long time, trusted chartist mentioned here the other day the statistics and chart facts that lay claim to this bull run being over. Louise mentioned targets downward that could be nearly 25% down. That’s not a tragedy, either. Heck, the market is still up 200% since the bottom in March 2009. But if you’re not willing to accept it you will find yourself on the side rails just watching the action.