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:
- Mutual fund cash holdings fall to just 3.4%, the lowest level in 60 years (previous extreme lows came in 2000 and 2007)
- The Dow Industrials have a 2.7% annual dividend yield (a lower percentage than 1929)
- A major sentiment indicator shows 24.3% bears (fewer than Oct. 2007)
- TRIN readings since the May 6 flash crash register .25 or lower for 21 trading days (readings this low indicate “buying panics”)
- The market sees trading volume rise during declines but not during rallies (which was true during the summer months and into September)
- 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”
- 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)
- 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 …
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.
My colleagues at EWI have put together a special offer for you; it’s not available on the public pages of our website. Until Friday, Sept. 24, you can start a 2-week trial to the Financial Forecast Service. Follow this link to learn more.
Thanks for reading,