How to Identify a Bull Market: A Look Back to a Trading Lesson of the Day
“A beggar lives meal to meal. A peasant lives day to day. A farmer lives season to season. A nobleman lives year to year. A king lives 10 years at a time, and an emperor lives a century at a time.”
— Chinese Proverb
In early April, when the Dow was trading about 20% lower, I wrote a multi-part lesson titled “The Making of a New Bull Market.” The article was intended to give you a framework as to how to identify when a bear market was transitioning into a bull market.
It’s now less than four months later and the market has made its transition. And in hindsight, this market has played itself out like every preceding bear to bull transition I’ve seen in the past 28 years.
Showing this lesson again today is still valid in spite of the run-up because many of the things mentioned in the lesson are still occurring today. Longer term though, it’s shared with you to help guide you in future markets. If your goal is to trade and invest for many years to come, then this means you’re going to see bear markets transitioning into bull markets and bull markets transitioning into bears. That’s the nature of the market. Having the long term knowledge to see these things and understand what’s going on allows you to focus on the bigger picture for years to come.
The only thing I would add to this piece is that in the next bear to bull transition (and vice versa), you should also keep an eye on the emerging nations indices, especially China. China has been one of the leaders here as traders and investors are looking to buy growth. China’s economy remains at a rapid growth rate and may do so for years. Therefore, by adding it as another indicator, you can keep an eye on its price action and see if in fact the market is making its transition.
You can find the April’s lessons here.
We put them into one lesson in order for you to print out and keep in your records. The signs mentioned in April remained true again this time (and true again even now) and you’ll be able to use them again in future markets over and over again.
I hope you enjoy and learn from rereading these lessons.
Note: Today will be the last Trading Lesson of the Day as I’m on vacation beginning tomorrow. The next Trading Lesson of the Day will be on August 10.
Larry Connors is CEO and Founder of TradingMarkets.com and Connors Research.