12 Minute Read

Tales of a Technician: Bear Market Targets

September 30, 2015

By | 3 Comments

Tales of a Technician: Bear Market Targets

Boy, oh boy. Those vicious bears are really sinking their teeth into our poor, old bull market this week. Take it easy, you brutes! I mean, I know he’s aging and ready to be put out to pasture, but do you have to usher him to the grave so speedily?

Such are my thoughts as I, along with every trader, wonder whether or not we’ve just witnessed the death of our beloved friend. Born in the depths of misery, the 2009 cyclical bull market grew to become one of the greatest of the past century. It faced doubt, skepticism, and downright hate along the way but continued reaching for the stars regardless. The phrase climbing a wall of worry couldn’t be more descriptive of the six year old bull market.

Of course, we may be getting a bit ahead of ourselves. Perhaps the current market downturn is just another correction designed to scare the panic-prone among us. Maybe the old bull market is engaging in a bit of trickery; faking death only to score an epic resurrection when no one suspects it. After all, it’s not as if we haven’t seen such subterfuge before. There was the summer swoon of 2010 – punctuated by the infamous flash crash – which delivered a 17% decline. And then there was the harrowing haircut of 2011 which was good for a 21% decline before sellers finally relinquished the scissors. …and don’t forget the 10% drop suffered in 2012. Since then it’s really been smooth sailing until our recent drama.

So how do we know when a cyclical bull market has officially ended a new bear has begun? Well, the widely accepted definition of a bear market on Wall Street is a decline of 20%. Why 20%? Beats me, but hey, you have to draw the line somewhere, and I suppose 20% is as good a threshold as any. As of Tuesday’s close, the S&P 500 was off 11.7%, the tech-heavy Nasdaq composite was down 13.7%, and the small-cap laden Russell 2000 Index was off 16.4%.

And that right there is your answer. According to the all-powerful wizards who selected the magical 20% threshold, no, we are not in a bear market. It’s a correction, and a severe one at that. Honestly, though, most traders don’t care about the dang definitions. From a trading perspective, you should be bearish when the trend – especially the weekly one – reverses. Guess what? The trends of all major indexes are officially pointing lower.

Until sufficient bullish evidence materializes, the path of least resistance is down.

In the event the selling raid turns into a full-fledged cyclical bear market, let’s establish a few downside targets. As is always the case, we’re going to use the past to guide our aiming efforts. If you look at every bear market since 1929, using the Dow Jones Industrial Average you’ll discover the average descent is somewhere around 30% and the average duration is approximately 18 months. Were we to see the S&P 500 Index undergo a similar swoon, it would tumble to $1493 (Target 2). To even enter an official bear market, we would need to see the aforementioned 20% decline which would take us down to $1707 (Target 1).

SPX bear

Another forecasting approach would be to use a Fibonnaci retracement for the entire 2009-2015 bull market. A pullback of 38.2% would carry us to $1580 (Target 3). You’ll recall the $1560 to $1580 zone has been quite significant historically. It halted the two previous bull markets in their tracks and was resistance for 13 years before finally giving way. This old resistance should become support in a big way if the next bear market leads to a retest.

Obviously these are long-term targets, but it at least provides an idea as to how much downside we’re looking at if a bear market really does materialize in the months ahead.


Tackle Trading: Financial Freedom is a Journey. Sign up now for a 15-day free trial.

Financial freedom is a journey

The Tales of a Technician series is brought to you by Tackle Trading.

Sign up now and gain unfettered access to all of the quality content and powerful Scouting Reports that our Pro Members enjoy for 15-days absolutely free with no strings attached and let us show you what your trading has been missing.

Sign up now for a 15-DAY FREE TRIAL #


Legal Disclaimer

Tackle Trading LLC (“Tackle Trading”) is providing this website and any related materials, including newsletters, blog posts, videos, social media postings and any other communications (collectively, the “Materials”) on an “as-is” basis. This means that although Tackle Trading strives to make the information accurate, thorough and current, neither Tackle Trading nor the author(s) of the Materials or the moderators guarantee or warrant the Materials or accept liability for any damage, loss or expense arising from the use of the Materials, whether based in tort, contract, or otherwise. Tackle Trading is providing the Materials for educational purposes only. We are not providing legal, accounting, or financial advisory services, and this is not a solicitation or recommendation to buy or sell any stocks, options, or other financial instruments or investments. Examples that address specific assets, stocks, options or other financial instrument transactions are for illustrative purposes only and are not intended to represent specific trades or transactions that we have conducted. In fact, for the purpose of illustration, we may use examples that are different from or contrary to transactions we have conducted or positions we hold. Furthermore, this website and any information or training herein are not intended as a solicitation for any future relationship, business or otherwise, between the users and the moderators. No express or implied warranties are being made with respect to these services and products. By using the Materials, each user agrees to indemnify and hold Tackle Trading harmless from all losses, expenses and costs, including reasonable attorneys’ fees, arising out of or resulting from user’s use of the Materials. In no event shall Tackle Trading or the author(s) or moderators be liable for any direct, special, consequential or incidental damages arising out of or related to the Materials. If this limitation on damages is not enforceable in some states, the total amount of Tackle Trading’s liability to the user or others shall not exceed the amount paid by the user for such Materials.

All investing and trading in the securities market involve a high degree of risk. Any decisions to place trades in the financial markets, including trading in stocks, options or other financial instruments, is a personal decision that should only be made after conducting thorough independent research, including a personal risk and financial assessment, and prior consultation with the user’s investment, legal, tax, and accounting advisers, to determine whether such trading or investment is appropriate for that user.

3 Replies to “Tales of a Technician: Bear Market Targets”

  1. Nicholas Kingsbury Nicholas Kingsbury says:

    Hey great article. Thank you for your time and input.

  2. MattWoeber MattWoeber says:

    Great article, Tyler. Useful to know how low things could go.

  3. Avatar Al Chandler says:

    Thanks Tyler, always a good read

Leave a Reply

Chart Modal

Tackle Trading