Is the Bull Market Over?

The last time that I saw the above question being posed this much was last summer, and even back then many were still unconvinced that we were in a bonafide bull market off of the March 2009 bottom (recall how many termed the move: “The greatest bear market short squeeze rally of all-time”). As we work through the seventh consecutive week in correction, it is natural to see sentiment turn negative and legitimate fear come back into the marketplace.

Be that as it may, as a serious trader your job is to not acquiesce to the bravado of those determined to declare that a major, multi-year inflection point is imminent. The reality is that from any technical perspective that maintains an ounce of objectivity, it is simply way too early to view the price action over the past two months as anything more than an intermediate-term bull market correction.

In order for us to get anywhere close to bear market territory, we would first need to see the 200 day moving averages of the major indices and sectors flatten out and begin to torque down, while price makes a series of lower highs. While anything is possible, the idea that price will immediately begin to crater without first popping up to make those lower highs defies the probabilities. As nasty as the late 2007-early 2009 bear market was, it still took many, many months to build up to the fireworks of the October 2008-March 2009 crash.

Again, anything is possible, but we make money by placing bets based on what we, as objective as we can, deem to be probable. Looking a weekly chart of the Dow Jones Industrial Average dating back to the March 2009 bottom, you can see how preposterous many of these gurus are who run around warning that the sky is falling, when we have not even so much as breached a simple long-term support trendline.

In other words, discussion about a new bear market is academic at best at this point, since there is much work to be done even if we do go there eventually. I am interested in wagering on high probability situations, and with price coming close to seven weeks down to a major support trendline like this, the presumption is that the odds favor playing a short-term bottom here rather than a long-term top.

The old joke goes that economists have correctly forecasted ten of the past four recessions. In a similar vein, bears have correctly predicted five of the past two bear markets.

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