The main question of bull or bear market has been answered quite loudly this week. BEAR!!! That is because we have spent 5 straight sessions in bear market territory, with the S&P 500 (SPY) dropping below 3,855. Now more investors are getting the memo and running for the exits at the same time. This begets a slew of other questions which we will ask and answer in this week’s commentary. Read on below for more….
Please enjoy this updated version of my weekly commentary.
Q: How long will this bear market last?
A: The average bear market in history has lasted for 13 months. That is measured from peak to valley. So in this case the peak of 4,818 was set on January 4, 2022. So if things went according to schedule we would say bottom is likely to be found around February 2023.
However the stock market rarely does anything according to schedule leading to the next question…
Q: Do you believe this bear market will be longer or shorter than the 13 month average?
A: I think it will be shorter because everything about the modern market works faster. Meaning that with so much computer based trading, volatility has increased with stocks rising and falling faster than ever before.
So quite possibly we find bottom faster this time around as well.
Q: Does that mean you expect stocks to fall less than the 34% average bear market decline because it will be a shorter time period?
A: Unfortunately not. I suspect we will wind up a bit closer to 40% decline given that the low rate TINA environment pushed stocks to higher than normal PE levels.
In fact many of the glamorous growth stocks of 2021 were seeing valuations not that far off the 1990’s tech bubble style levels. From that higher peak it will likely be a steeper than normal drop to find equilibrium.
Note that 3,180 represents a 34% decline from peak. And 2,891 is where we end up if 40% decline is in the cards.
Q: How should one interpret a positive day for stocks like today if we are in the midst of a bear market?
A: Consider this…does a bull market go straight up?
Of course not. There are extended bull runs followed by pullbacks and corrections. Yet as you look back over time the gains of the bull are undeniable.
Bear markets are no different. They don’t go straight down either. It is an ongoing process of bear runs to new lows followed by bounces and then another leg lower so on and so forth til bottom is found.
Now everything I said is my current guestimate with a wide range of potential outcomes. NOTHING about this bear, or any other, will go according to a preset pattern. That means we need to be flexible to adjust our plan according to the realities on the ground.
That includes when we start bottom fishing for the next bull run. We would rather be a touch early than a touch late.
That’s because on the late side there is usually a wicked 10-20% bounce from bottom that catches everyone by surprise.
So I suspect we will kind of work our way back to fully invested in 2-3 phases to never be leaning too far in the wrong direction when the market is finally ready to explode off the bottom.
Right now I imagine that first attempt at buying bottom would be around -30%…then down 34%…then hold on to that last part to see if indeed -40% is in the cards. However, at this stage we are getting WAY ahead of ourselves.
For now, there is likely a few months’ worth of bear market to come. Scary drops…shocking bounces (rinse and repeat).
However, since we are prepared, we can handle it in the best possible fashion to end the bear market in positive territory and then step on the gas with the start of the next bull.
Hang in there…I am with you every step of the way.
What To Do Next?
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Yes, it’s easy to make money when the bull market is in full swing. Anyone can do that.
Unfortunately most investors do not know how to generate gains as the market heads lower. So let me show you the way with 6 trades perfectly suited for today’s bear market conditions.
And then down the road we will take our profits on these positions and start bottom fishing for the best stocks to rally as the bull market makes its rightful return.
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Wishing you a world of investment success!
Steve Reitmeister…but everyone calls me Reity (pronounced “Righty”)
CEO, StockNews.com and Editor, Reitmeister Total Return
SPY shares closed at $365.86 on Friday, down $-0.79 (-0.22%). Year-to-date, SPY has declined -22.73%, versus a % rise in the benchmark S&P 500 index during the same period.
About the Author: Steve Reitmeister
Steve is better known to the StockNews audience as “Reity”. Not only is he the CEO of the firm, but he also shares his 40 years of investment experience in the Reitmeister Total Return portfolio. Learn more about Reity’s background, along with links to his most recent articles and stock picks.