OPINION: From failed rallies to almost everyone throwing in the towel, a bear market typically follows nine stages. We are at Stage 4 now, our contributor Michael Sincere writes. Here are some keys to success in the market, according to his advice.
The official definition of a bear market is a 20% or greater decline from an index’s previous high. Accordingly, the three major U.S. stock-market benchmarks — the Nasdaq COMP, +0.90%, the S&P 500 SPX, +1.
14% and the Dow Jones Industrial Average DJIA, +1.12% — are currently all in a bear market. Based on my work with stock market strategist Mark D. Cook, a typical bear market goes through nine stages. Right now we are in Stage 4. Keep in mind that a bear market does not always follow these stages in the exact order. 1. Failed rallies: Failed rallies represent the first clue that a bear market is here. Failed rallies often appear before the market “officially” becomes a bear market. If the rally doesn’t have legs and cannot go higher for the next few days or weeks, it confirms that the bear’s claws have sunk in. Along the way, many failed rallies will fool bulls into thinking the worst is over. Watch the rallies for bear-market clues. The rally so far this week is an example. Now in its second day, a failure of this rally would confirm that stocks are not yet out of a bear market. 2. Low-volume rallies: Another bear market clue is that stocks move higher on low volume. This is a clue the major financial institutions aren’t buying, although algos and hedge funds might be. It’s easy for the algos to push prices higher in a low-volume environment, one of the reasons for monster rallies that go nowhere the following day . 3. Terrible-looking charts: The easiest way to identify a bear market is by looking at a stock chart. It goes without saying that the charts look dreadful, both the daily and the weekly. While rallies help relieve some of the pressure, they typically don’t last long. 4. Strong selloffs: It’s been a couple of years since markets have experienced extremely strong selloffs, but that record was broken the week of September 26 when the S&P 500 hit a new low for 2022. These strong selloffs are typical of a bear market, followed by rallies that don’t last . 5. Mutual-fund redemptions: During this stage, after looking at their quarterly and monthly statements, horrified investors throw in the towel and sell their mutual funds . As a result, mutual fund companies are forced to sell . Typically, when the indexes fall more than 20%, mutual fund redemptions increase. 6. Complacency turns to panic: As more investor money leaves the market, many investors panic. The most bullish investors are holding on for dear life but are buying fewer stocks. The most nervous investors sell to avoid risking precious gains. 7. All news is bad news: As the bear market pushes stock prices lower, it seems as if most economic data and financial news is negative. Many people become skeptical of the bullish predictions from market professionals, who earlier had promised the market would keep going up. In the depths of the worst bear markets, some bullish professionals are jeered or ignored. Even die-hard bulls are increasingly nervous as the market heads lower and lower . 8. Bulls throw in the towel: As trading volume increases on down days, and some investors experience 30% or higher losses, they give up hope and sell. The market turns into a free-for-all as even the Fed appears to have lost control. Many in the media admit that a bear market has arrived. 9. Capitulation: After weeks and months of selloffs , many investors are panicked. Investors realize that it may take years before their portfolios will return to breakeven, and some stocks never will. In the final stage of a bear market, trading volume is more than three times higher than normal. Even some of true believers liquidate positions, as many portfolios are down by 40% or 50% and more. Almost every financial asset has fallen, with the exception of fixed income such as CDs and T-bills. Traders or investors who trade on margin feel the most pain. Read: ‘Material risk’ looms over stocks as investors face bear market’s ‘second act,’ warns Morgan Stanley Take action This bear market is fairly young, but already there have been so many failed rallies that many investors are too afraid to buy. Some investors with cash are looking for bargains, but it takes nerves of steel to buy when everyone is selling. One of the keys to success in the market is to buy what people don’t want. Here are several ideas of what to do : The length and volatility of every bear market is different. No one can predict how this one will turn out, but based on previous bear markets, there’s still a long way to go before it’s over. Michael Sincere is the author of “Understanding Options” and “Understanding Stocks.” His latest book, “How to Profit in the Stock Market” , explores bull -and bear market investing strategies. More: Could there be a stock market rally? Probably. Would it be the end of the bear market? Probably not. Also read: Whatever you’re feeling now about stocks is normal bear-market grief — and the worst is yet to come
Please follow us on Google to support usUnited States Latest News, United States Headlines
Similar News: You can also read news stories similar to this one that we have collected from other news sources.
Neighbor Helps Free 10-Year-Old Child From Bear's Grip in ConnecticutFrightening screams were heard from Jonathan Digimas’ neighbors’ home on Sunday. “Saying, ‘help, help, help,’ and I heard the 10-year-old boy saying ‘bear, bear, bear’ so I knew right then the bear must have gotten hold of him,” Jonathan Digimas said. Digimas said the black bear was on his property just moments before he attacked the 10-year-old visiting his grandparents…
Read more »
Wyoming College Wrestlers Fight Off Fierce Grizzly Bear in ‘Surprise’ AttackA group of four Northwest College wrestlers had finished antler hunting and had broken into two groups heading towards their vehicles when one wrestler noticed bear feces in the trail.
Read more »
Bear attacks mountain climber on sheer cliff face in shocking footageAs bears' activity increases, so does the likelihood that they will encounter humans and fall often brings a rise in attacks.
Read more »
'Horrific': 2 college wrestlers injured in grizzly bear attack in WyomingWyoming wildlife officials said two men were injured when they were attacked by a grizzly bear while hunting over the weekend in Cody.
Read more »
Rock Climber Captures Terrifying POV Footage of Bear Attacking HimWhen your helmet camera captures a bear trying to kill you.
Read more »
250-pound bear mauls 10-year-old boy playing in grandparents’ backyardA neighbor alerted by the boy’s screams raced over and scared the bear off by brandishing a pipe and yelling.
Read more »