The recent Bear Move, that began in mid-May, has ended and the Bulls are in charge again. Of course, experts on CNBC are still advising investors to be cautious and not rush in, just like they were telling all of us a month ago to not be alarmed by a down day or two. Meanwhile, the S&P 500 declined 7% from its close of 1363.61 on April 29th to the close of 1265.42 on June 15th. At that point effectively the market was up 0 % for 2011, with many stocks down 20-30% from their recent highs.
Usually, it is at that moment of maximum financial pain, when many individual investors stop listening to advice that “things are fine” and finally dump indiscriminately the stocks they have bravely held through the decline. This “capitulation selling” is the reason why we often observe the heaviest volume at the end of a bear market.
The individual investor is famous for buying at the top and selling at the bottom. But it doesn’t have to be this way. Monitoring a few simple technical red flags, would have warned anyone of the serious bear move in May so you could have closed your long positions (and even gone short) by mid-May and reenter the market this week (week ending Friday July 1st) as the market gave clear evidence the uptrend is resuming.
Technical Signs of a Bear Market. The best known rule of thumb for a down trend is a series of lower highs and lower lows. While this rule is as valid as ever, it sometimes takes the market at least a week or two to establish its next high or low for investors to evaluate. The rules listed here will usually give you a much earlier warning.
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