Sunday Musings: Bear Turns To Bull?

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[Click chart to enlarge]

Hat tip to Doug Short for providing this updated chart (through 5/8/09) showing the “four bad bears.” I added the red arrow to indicate where we are currently at to show how this current market rebound compares historically.

The S&P; 500 closed the week at a new rally high 37.4% above the March 9th low. Are we in a new bull market, or is this a bear market rally?

We continue to be fascinated with the saga of the Four Bad Bears. In nominal terms, the latest rally puts the S&P; 500 well above the Dow Crash of 1929 over the equivalent time frame.

As you can see from the chart, the S&P; 500 has rallied 37.4% from its lows on March 9, but is still down 40.6% since the beginning of this bear market. My belief is that this is still a bear market rally, which is about to turn bullish according to my domestic Trend Tracking Index (TTI).

That’s why I keep singing the same old song that, if you participate in this uptrend, you must work with an exit strategy. If you don’t, take a look at the above chart again and watch what happened to the gray line representing the crash of 1929. Despite many up turns, the bear market resumed until all buy and hold investors were wiped out with total losses from top to bottom of -89.2%.

I am not predicting that we may facing the same scenario, I am simply saying that, if you learned anything from last year’s debacle, it should be that the masses of investors along with their advisors will likely be wrong again when the bear returns.

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