Tales of a Technician: What if that WAS the Bear Market?
July 20, 2016
I’m a fan of challenging long held beliefs. Venturing into contrary opinion is always a refreshing endeavor. It either leaves you even more convinced that the miscreants in the other camp are morons, or it helps your realize they actually possess a compelling argument or two.
Take the following viewpoint you may possess for instance:
The S&P 500 has gone up so much since the 2009 low without an official bear market it’s dangerous to buy up here. We need a 20+% decline to reset the clock. Plus we have to be due for a recession, right? It’s been 7 long years since the last one ended (June 2009). And the worst bear markets are always accompanied by recessions so BEWARE.
So here’s my counter. Why does the S&P 500 have to go down at least 20% before a new bull begins again? Might two years of churn with multiple 10% plus drawdowns be adequate? Not to mention the fact that energy stocks (XLE) dropped 50%, biotech (IBB) dropped 40%, small-caps (IWM) and emerging markets (EEM) lost some 30%. What if that was enough carnage to be the bear market? It’s a possibility, no? And don’t get me started on sentiment. I feel like spectators are being dragged kicking and screaming into the market. So it’s not like the feelings of the masses are warning of euphoria.
Forget what you think about the economy/earnings and all that jazz. Listen to the message being broadcast by price. The monthly and weekly charts are in uptrends. We’ve built a serious base for two years and now we’re breaking to the upside. Do you really have any choice but to be optimistic here?
Sure the daily chart is in need of a pullback but the weekly and month charts look epic. And what’s that I see? A MACD monthly buy signal about to flash? Indeed. Needs a bit more time but looks good. Whileit’s not infallible it sure as heck ain’t bearish.
And, yes, I know the market can turn on a dime and blah blah blah. When the facts change I’ll shift.
Food for thought.
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Good reminder to trade what you see, not what you think should be happening. Nonetheless, I still see irrational exuberance as I look through my bear lens. Thanks, Ty
Thanks Ty!
Thank you for your observation (s) .. Very beneficial to listen & take in
Thanks Tyler. It helps to know that sometimes the well-worn aphorisms don’t always apply.
That would be interesting, indeed. As others have mentioned, I’ll do my best to trade what I see, not what fundamentals are screaming. A market that is bolstered up with worldwide QE money, negative interest rates, and economies laden with previously unfathomable amounts of debt doesn’t seem like the best backdrop for bull markets. Yet, if a bull market it is, that’s what we’ll trade! Oh, the joys of not being a position trader in times like these…
This does bring to mind the classic Buffettism, “you want to be greedy when others are fearful. You want to be fearful when others are greedy. It’s that simple.” And to put it into context, CNN Fear/Greed index is at 86 (Extreme Greed) today (a down day).
http://money.cnn.com/data/fear-and-greed/
I do appreciate the perspective, but don’t believe the drawdowns we’ve had will be enough to ward off a coming bear market. Time will tell. I’ll do my best to be prepared for anything, and not let my bias cloud my judgement.
Thanks for sharing your perspective, Tyler!
Agree. The long term consolidation needs to be watched and the market has broken so many rules over the last 2 years.
When you back out to weekly charts, this year’s S&P500 action looks more like a high base consolidation that is now breaking out for a bull continuation. Any thoughts?
Thanks for your insights. I could agree that the market trend is still bullish, though I’m cautious because July and Aug tends to be quite choppy, and my trading confidence sucks.