On August 9th, I made the call: "this is a bear market". Obviously, with the NASDAQ 100 nearing cyclical highs, the notion of a bear market seems kind of silly. But I am not making a mea culpa or even apologizing for what seems like a bad call, I am just clarifying that this is no longer a bear market. The "counter trend trade within a bear market" that I have been writing about since mid- August has obviously morphed into something else.
So was the bear market call a bad call? The call was made on August 9th, and the SP500 had already dropped about 10% from the May highs and it had another 10% to go before the lows were seen, and now the SP500 is trading about 6% above the level at which I made the call. So maybe my call wasn't so good, but on the other hand, the call of bear or bull market had little effect on whether I was able to capitalize on the current move in the market. I have been long ever since a weekly close over 1133 on the SP500, and I have been long the Power Shares QQQ Trust (symbol: QQQ) since August 19 when the issue was at 50.
However, the call was good on certain accounts. For example, in the last 3 months, I have highlighted the i-Shares MSCI Emerging Market Index Fund (symbol: EEM), the i-Shares FTSE China 25 (symbol: FXI), and the S&P Select Financial SPDR Fund (symbol:XLF) as examples to support my bear market call. All 3 issues remain at the levels that I made the call.
Copper was another issue that I was all over early. I first highlighted copper and the global economy on August 14th suggesting that both were vulnerable. Copper went on to lose over 30% in the next 8 weeks. So I am not too much of a dumby head!
So where are we now? Bear market? Bull market? Or something in between? While I am feeling a bit gun shy about making the call (even though my trades have worked out so far), I would have to say we are back in bull market mode. Looking at a weekly chart of the SP500, we note that a weekly close over 3 key pivot points (red dots on the chart) is bullish. A weekly close below 3 key pivots, as was seen in 2008, is bearish.
Figure 1. SP500/ weekly
The bull market call seems nice and tidy. However, I will be the first to admit that issues remain. Copper is still in a bear market (more on this later), and my recession watch is not off the table yet. I guess the best thing to do is not get caught up in naming this or that, and just trade the set ups as they come.
