Watch for These 7 Signs of the Bear

Bear Markets Markets
by 

The widely accepted definition of a bear market is a 20% decline over a two-month period.bear.market
The question I ask is this:  Why must you watch your portfolio drop 20% before you now take action?
Can you be bearish (or a bear) without losing that benchmark 20% first? In other words, hold a belief that the market will go down before it actually drops.
Seeing the signs of a down trend before you are sitting with a 20% decline in your accounts will undoubtedly improve your market performance and long-term results more than just about anything.

Bear Market Signals

So here are seven common signals that the bear is on the near horizon:

  1. The market begins to gap up in price in the morning at the open but ends up closing lower each day for multiple days.
  2. Previous stocks that were leaders are struggling to hold their 50 day moving averages, many are trading below their key 50-day moving average.
  3. There is a lot of uncertainty about the future in the overall economy.
  4. The market is making lower highs and lower lows over multiple weeks.
  5. Money is flowing out of mutual funds and into bonds in large amounts.
  6. Talking heads are trying to convince people to buy stocks, that they are now a great “value.”
  7. Consumer-staples-type stocks start outperforming (e.g. Wal-Mart Stores (NYSE : WMT), McDonald’s (NYSE: MCD) and dollar stores) along with utilities.

When all these things line up, there is usually a high probability that something is changing.
Over time, these combined signals have been a fairly reliable indicator to consider minimizing your risk before strong selling happens, as the market is signaling caution.
Remember that no matter how great a company is or how amazing its earnings, products or gizmos, nothing will be safe in a bear market.
As the old sports and investing adage goes, “Offense wins games but defense wins championships.”
 

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