Sunday, March 7, 2010

If it Looks Like a Bull, and Walks Like a Bull:

As far as I know there is no precise definition of a bull market. Ned Davis Research define a bull market to be: A Bull Market requires a 30% rise in the Dow Jones Industrial Average after 50 calendar days or a 13% rise after 155 calendar days. This is an important benchmark for all market participants because there are still investors and portfolio managers out there who are just now getting invested having missed all of the great 2009 advance. I know of one local portfolio management firm that actually managed to lose money in 2009!

The Ned Davis definition is important but I think an easier way to identify the bull is to firstly identify the bear. So if we can ID the bear then we know the bull because you can’t have both operating at the same time. I would define a bear market to be a market as measured by the S&P500 or the S&P/TSX60 that posts a new 52-week low within a 26 week window.

Our chart is the weekly closes of the S&P500 spanning about 4+ years. We can clearly see the great 2007-2008 bear and the subsequent 2009 – 2010 bull. Of course this is easy with the benefit of hindsight but when you overlay the weekly or intermediate cycle you can clearly ID the bear which flashed a new 52-week low within the 26-week window in Q3 of 2007. The new 52-week lows within the 26-week window persisted until March 2009.

The failure of the bear to post a new 52-week low by late July through early August 2009 signalled an “official” departure of the bear and so with the bear gone – we must have a bull. When we have a bull we get invested pronto – investing is not a spectator sport – you have to participate. It is all well and good to buy-and-hold and know when to sell – but to miss the next bull market is portfolio damage that cannot repaired


andy said...

The chart you used in your article clearly shows the inverse Head and Shoulders bottom in 2009. I make the upside target 1,350 on the S & P.

Andy Trottier
Ottawa said...

Hello Andy

Yes a perfect Inverse H & S pattern also note the left shoulder is larger than the right shoulder a classic example - as far as price targets I find that both bulls and bears usually exceed our expectations

Bill C

Prudent Man said...

Unfortunately I missed the 2009 Bull move having had most of my portfolio with a similar (or could be the same) discretionary portfolio management company, who kept it's clients like me, on the sidelines in cash and US bonds, while the US$ was sliding and the market indices were advancing steadily and into bull market territory by definition. All the while paying hefty management fees for the negative results. Lesson learned, get educated and keep learning from the likes of Bill, take control prudently and don't put all your eggs in one basket or one financial manager. I am now doing that.