ECONOMY: How is the stock market making gains despite the current circumstances?


It’s still a bear market, I don’t care what the financial media says.

Bear markets take time. They don’t slice stock prices in half in just a few days.

The recent crash was the fastest crash from all time highs, ever. Think about that – all the other big, famous crashes took LONGER than this crash is taking.

A few facts to keep in mind about bear markets:

  • They usually last 1-2 years.

  • The market doesn’t go down in a straight line. There are LOTS of bear market rallies on the way down.

  • The biggest single day gains historically have occurred during bear markets, not bull markets.

  • Bear market rallies tend to be sharp and painful for anyone who bought puts.

  • Bear market rallies can last for months at a time.

  • The Fed is indeed distorting the market, but if foreign markets and currencies suddenly and expectedly become more attractive than the US, the Fed will not be able to stop the flow of money out of the market.

  • The bottom is usually in once the market is crashing lower on days with low volume. That represents capitulation by the bulls. We haven’t seen that yet.

The best play here is NOT to buy puts; it’s to stay in cash, and dollar-cost-average into the market over a 1 year timeframe once SPX hits 1900 (its 15-year inflation-adjusted moving average, which it touches once or twice every 20 years or so).

It’s not necessarily a bunch of buy-the-dippers. All it requires is more bids than asks. With so many people having their 401k etc. on auto-invest, Life Cycle Funds and so on, there is built-in continuous arrivals on the buy side. And with everyone “knowing” that passive indexing is the only way to go, the bids will be distributed numerically according to current marketplace cap, accumulating numeric drift and dispersion (the big get bigger). People can try to fade this dynamic (“value”) but they will have to be very, very patient.

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