MyValueResearch

The Bear and His Market

A bear is an investor or trader who believes the trend of stock prices is down and trades or invests with that trend by selling his stock and or selling short. A bear market is a depressed or declining market. One can have bear market in a real estate, automobiles, commodities, bonds or anything else including the stock market.

Be not a bull, nor a bear, but Realist

A bear is not a permanent pessimist. Nor should a bull always be an optimist, if he is wise. You should be able to change from a bull to a bear or a bear to a bull, as conditions change, and not be the least inconsistent. Some people are permanent bears and give the symbol a bad name. Permanent bears often have a puritan ideology that sees prosperity and bullishness as some kind of original sin.

Likewise, many people are always bullish, obviously without sufficient justification. The almost bull market from 2002 to January 2008 has made most people permanent bulls. It has been impossible for them to accept that any downturn is more than a short-term correction. But in any market the flexible realist is the winner. So, let it be crystal clear that a proper bear is someone who used to be a bull but become a bear as conditions changed.

What causes a Recession?

Depression or Recession is caused by basic economic changes of supply or demand or credit. What leasers say about circumstances cannot in itself help or hurt the situation, except perhaps for a few days. If an apple is rotten, the art of saying so will not make it ripe. If its ripe and someone calls it rotten, it will not turn rotten on the spot just because of this characterization, talk just doesn’t matter. One basic approach was defined by Charles H Dow. That premise still holds today. He called it “The Great Law of Action and Reaction”. “It is a remarkable fact in speculation that both average price of a number of stocks and the price of individual stock show strong tendencies, both in rallies and relapses, to reach one half of all the primary movement. When a stock falls 10 points in a comparatively direct move, it is extremely likely to rally as much as 5 points from the lowest. It often rallies or relapses more than half of the original swing, but it is generally safe to wait for about half. “ A comparison of the Averages shows how regularly this movement occurs. When a recovery does not come near being one half of a decline, it generally means that the primary movement has not been completed and that a new low quotation will be made.”

Tools to help you recognize and survive a bear market The beauty of Technical Analysis is that it is “scam proof”. It relies on your ability to read the charts and the price data, not on public or insider information. With the technical Approach, you know that, what you know about a specific index reading is all there is to know. It involves methods of measuring the various
things in the stock market deemed worth measuring. The stock market is probably the toughest field in the world because the keenest minds are in it, in competition with you. Thus, how you use you tools or weapons may well determine how you fare. Note: - a number of the indicators mentioned below can be obtained on a daily basis form various online services.

? Advance Decline Ratio: - By subtracting the daily number of advances from declines (or declines from advance) and subtracting (or adding) that difference from a running cumulative total from an arbitrary starting figure), you measure what the great mass of the market is doing. This is surely the most basic and important tool.

? New Highs – New Lows: - Total the last 5 days of the daily new highs, divide by 5. that’s the 5-day moving average. Do the same for the lows chart the highs in Green, the lows in Red. Observe whether the highs remain on top during a reaction that has interrupted a major upswing (if not, it’s usually fatal to the upswing) and vice versa. Note whether each successive peak of highs or lows is higher than the previous one as a guide to the soundness of primary trend. Also compare highs with highs, lows with lows.

You may wonder why I recommended a 5-day moving average but there are no laws in this field. You can create and mold or alter to suit yourself. Also, the size of your moving average may depend on whether you are a daily trader, a short-term trader or long term trader, or some or each. The longer term you are, the broader time period you will usually want to measure.

? Volume: - Bear market cycles begin on reduced volume, as the major (downtrend) phase develops, volume increases and this phase ends in a selling climax on heavy volume. The ensuing rally (corrective phase) is accomplished by declining volume, which dwindles until the rally loses momentum completely, and the major trend is resumed in a new bear cycle. Bear market rallies start out of active selling climaxes”

The single most important key or guide to remember in this area of using technical tools for buy or sell clues in this. The success of the technical approach can be realized only when the indicators are heavily weighted in you favor. The trick in the stock market has never been what stock to buy or sell but when. That’s where charts come to the rescue. Charts will guide you in both. Once you have used a chart to buy a stock, it usually gives you a sell target and vice versa.

The beauty of charts is their capability (based on interpretative ability) to tell both when to buy and when to sell precisely with logical rationale. Listen to your charts. If they say buy or sell, don’t argue. Charts follow the money, so follow the charts.