Bull Market or Bear Market Rally?
by Jerome "Mel" Hickerson
Note: Greetings from Miami. Due to travel plans, this is an abbreviated report. Monday evening’s report should resume with normal reports.
Bull Market or Bear Market Rally?
Let me preface my remarks with an acknowledgement that many of you will disagree with me on what I write here. I base my comments on historical data rather than on the daily news cycles. While we may feel that current events are extraordinary (they are), it also remains true that at almost any time in history events were perceived at the time as extraordinary.
Last August, when I began writing that I thought the bear market had changed to a bull market I was scoffed; I received numerous comments that this was simply a typical bear market rally. My response to that was that the typical bear market rally historically has been about four months in length with only one ever reaching the length of six months. In August our rally was reaching the age of five months.
Many analysts use the definition of a 20% decline or advance to define bull and bear markets. I choose to define things a bit differently.
So let's examine the chart and understand my definition of a bull or bear market. For the purposes of this chart I have chosen to use the last 14 years of data. Using more data makes the chart too small and difficult to read but the pattern persists as far back as my data goes.
I use a very simple method for determining bear and bull markets: If the entire monthly range falls above or below the simple 10 month moving average, it signals a change from bull or bear. This method will often signal a change much earlier than the typical definition of a 20% move.
You'll notice that August of 2009 the entire monthly range fell above the 10 month moving average. (June 2009 almost traded the entire month above the moving average and served well as a warning of an impending trend change.) Even with the current correction we remain 85 points (+8%) up from the start of August.
The 10 month moving average currently sits at 1035, an area of support that would be fiercely defended. But until the entire monthly range trades below this (rising) average, I am not prepared to declare this rally dead.
Getting too bearish and betting against the long term trend always has a chance of working; you may have correctly picked the top for your entry. But history says your odds are best if you bet along with the 10 month moving average.
Have a great weekend everyone.
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"Mel"
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Ultra S&P500 ProShares (NYSE: SSO)
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Ultra QQQ ProShares (NYSE: QLD)
PS UTLRSHRT QQQ (NYSE: QID)
UltraShort S&P500 ProShares (NYSE: SDS)
UltraShort Dow30 ProShares (NYSE: DXD)
PowerShares QQQ Trust (NASDAQ: QQQQ)
Direxion Daily Small Cp Bear 3X (NYSE:TZA)
Direxion Daily Small Cp Bull 3X (NYSE:TNA)
