Will You Survive The Next Bear Market?

By: Chris Vermeulen | Fri, Mar 27, 2015
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Since the beginning of January 2014 stocks have shown signs of institutional selling. This can be seen in the small capitalization stocks index the Russell 2000. This group of stocks generally leads the S&P 500.

Most bull market tops in the S&P 500 shown below take 8-12 months to form before it starts to fall in value. So far the market has been under distribution selling meaning the large traders (institutions, hedge funds) is selling their positions to the average investor to be left holding the bag when things go south.

The chart posted below shows some of my analysis of the SP500 index. This chart shows the 200 day moving average which is a great indicator of the major trend of the market. Green means bull market, red indicates bear market.

Also you will see the red ATR (Average True Range) indicator at the bottom. This tells us if the average daily movement for the index is high or low. When this red area rises we know there is a large amount of money flowing in and out of the equities market. It takes large amounts of capital to do this and is why the sellers are most likely hedge funds and institutions rebalancing their portfolios for an upcoming trend change.

Daily Volatility Spikes
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If we step back and take a look at the bigger picture using the monthly chart of the S&P 500 we can foresee what is likely to happen in the next 12-36 months. The US stock market is losing momentum which can be seen by the relative strength indicator at the top of the chart.

Also the support trend line give us a feel on how soon a breakdown in price may happen. It appears to be just months away...

$SPX S&P 500 Large Cap Index INDX
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Taking things one large step further back, roughly 70 years you can see some patterns of that in the past. The question is not will there be a bear market, but how far will it correct?

The cart below shows a very bullish outlook of a minor correction of 30% in the next 36 months. Also I do have analysis that shows that if we break below the 30% level we could have a 50-60% correction which could trigger a chain reaction of issues including the US bond bubble to burst.

$SPX S&P 500 Large Cap Index INDX
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US Stock Market Conclusion:

In short, the US stock market continues to grind higher but with several warning signs to investors who know how to spot them.

There are three ways to play a bear market. The first is to do nothing, which is what most people do as they watch their life savings slowly evaporate right in front of them month after month.

Second, is to liquidate a large portion of equities and sit safely in cash while others lose money.

The third and last is to position yourself to profit from a falling market. It's known that stocks fall 4-7 times faster than they rise, which means you can potentially make 7 years' worth of profits in just 1-2 years if done correctly.

These are ways to play a bear market, and I say play because you do need to be a little more active to enter and lock in profits in this market condition. This is something I can help you with through my trade alert newsletter.

Happy Trading!

 


 

Chris Vermeulen

Author: Chris Vermeulen

Chris Vermeulen
President of AlgoTrades Systems
www.TheGoldAndOilGuy.com

10126 Hwy 126 East, RR#2
Collingwood, ON, L9Y 3Z1

Chris Vermeulen

Chris Vermeulen, founder of AlgoTrades Systems., is an internationally recognized market technical analyst and trader. Involved in the markets since 1997.

Chris' mission is to help his clients boost their investment performance while reducing market exposure and portfolio volatility.

Chris is also the founder of TheGoldAndOilGuy.com, a financial education and investment newsletter service. Chris is responsible for market research and trade alerts for of its newsletter publication.

Through years of research, trading and helping thousands of individual investors around the world. He designed an automated algorithmic trading system for the S&P 500 index which solves his client's biggest problem related to investing in the stock market: the ability to profit in both a rising and falling market.

AlgoTrades' automated trading systems allows individuals to investing using either exchange traded funds or the ES mini futures contracts. It is supported by many leading brokerage firms including:

- Interactive Brokers
- Trade MONSTER
- MB Trading
- OEC OpenECry
- The Fox Group
- Dorman Trading
- Vision Financial

He is the author of the popular book "Technical Trading Mastery - 7 Steps To Win With Logic." He has also been featured on the cover of AmalgaTrader Magazine, Futures Magazine, Gold-Eagle, Safe Haven,The Street, Kitco, Financial Sense, Dick Davis Investment Digest and dozens of other financial websites. His list of personal and professional relationships approaches 25,000, people with whom he connects and shares is market insight with out of his passion for trading.

Chris is a graduate of Seneca College where he specialized in business operations management.

Chris enjoys boating, kiteboarding, mountain biking, fishing and has his ultralight pilots license. He resides in the Toronto area with his wife Kristen and two children.

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