When do bear markets end?

No, this isn’t a trick question. Some people say the answer is “complicated,” yet I assure you that it is not. In fact, the end of a large bear market includes many indicators that are downright quantifiable.

The simplest answer to the question amounts to a nine-word sentence. But first allow me to show what the end of a bear market is by describing what it is not.

It is NOT the end of a bear market when:

1. Mutual fund cash holdings fall to just 3.4%, the lowest level in 60 years (previous extreme lows came in 2000 and 2007)
2. The Dow Industrials have a 2.7% annual dividend yield (a lower percentage than 1929)
3. A major sentiment indicator shows 24.3% bears (fewer than Oct. 2007)
4. TRIN readings since the May 6 flash crash register .25 or lower for 21 trading days (readings this low indicate “buying panics”)
5. The market sees trading volume rise during declines but not during rallies (which was true during the summer months and into September)
6. The city of Atlanta has a 21.2% commercial vacancy rate (2nd highest of major U.S. markets), yet owners of troubled properties claim to “remain optimistic”
7. This year has seen the sale of $4.4 billion in bonds which are tied to subprime auto loans (already more than 2x sales in 2009)
8. All the above (and more) is true, but the nation’s financial newspaper of record posts a mid-day stock market summary with a quote from a top fund manager who says, “This as optimistic as I have been this year.”

When we’re at or near the end of a bear market, the list above will read as a mirror-opposite: Mutual fund cash holdings, for example, will be up at record high levels. And at a true major bear market low, no investor will purchase a bond linked to subprime auto loans — because no SANE issuer will dream of bringing such a toxic security to market!

This environment cannot be the end of a bear market. So here I offer the simple nine-word sentence — a major bear market ends when:

Everyone who is going to sell has done so.

At the end of a bear market, selling is exhausted; prices hit stunning long-term lows; buyers create an obvious bull trend. Alas, dear reader, that is not today’s market. The facts show terrible fundamentals; buyers now assume absurd levels of risk; media reports reflect a wild optimism based upon …

… Nothing.

Please look again at what the end of a bear market is NOT — it comes directly from just a few of the facts and evidence you’ll find in the September issue of Bob Prechter’s Elliott Wave Theorist. More important still is the context Bob provides — complete with the insights, analysis and forecasts that he alone can deliver.

Thanks for reading,