Sunday, April 12, 2009

Case Study For Rallies In Secular Bear Markets

When i think secular bear market in equities, Japan's Nikkei comes to my mind. So i decided to do a case study going back to 1987 and study how big and how long these secular bear market rallies last. A couple of days ago i made a post called Have An Open Mind. I did this post because i felt like a lot of new traders were just longing FAZ and SKF and holding on to their to positions as if financials and the market will drop after every small rally and easy money is made without using any risk management. That is clearly not the case! Now, please do not get me wrong, i am bearish longer term on equities and anyone who knows me well, knows that i love shorting and the high volatility that is associated with bear markets but right now this rally needs to be respected. Now, this rally could poop out come monday morning, no one knows that for sure. Best thing to do is trade what the charts are saying and good USE RISK MANAGEMENT in ALL your trading decisions whether they be bullish or bearish. Don't just assume because that we are in a bear that stock prices drop after every 10% rally. Look, the hard core bears might eventually be right about the market breaking to new lows but will their account still be there to reap the rewards? Only proper use of stop losses and discipline will ensure that.

happy trading.


Charts and Coffee said...

well said. Could not agree more.

Anonymous said...

Source: Thomson Reuters

David Rosenberg, North American Economist at Bank of America / Merrill Lynch (NYSE:BAC - News), is one analyst that seems to agree. In one of his recent reports he states "We remain of the view that the risk of earnings disappointments will take the S&P 500 to new lows before the bear market runs its course. Based on the outlook for corporate profits and the typical trough P/E multiple that characterized recession bear markets, it would not surprise us to see the S&P 500 gravitate in a 475-650 range for an extended period of time."

According to Thomson Reuters, this is also the first time since they have been tracking sector earnings growth in 1998 that all 10 S&P 500 sectors are reporting contraction. Consumer Discretionary is expected to have the worst quarter, down nearly 110% from one year ago while Health Care is expected to fall the least.

Source: Thomson Reuters

I agree with this guy. What has changed to justify this market. everyone is getting bullish and they are all going to get burned. Especially that deush bag on cnbc who has called a bottom like 20 times. at 10000 he heard bells ringing that a bottom was in.MFer is a schizophrenic. I do not trust this market!

Stewie said...

anon: awesome comment. i hear ya bro. This is a 'manufactured' rally and it doesn't feel right but it is still playable until it runs it's course.

C. Burris said...

Stewie, I just started reading your blog a few weeks ago and am enjoying your analysis. I've noticed you've said a few times that you are bearish longer term on equities. When you say longer term, are you talking about 1 year out, 5 years out, or even 10 years out (I hope not)?

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