Time To Institute Bear-Market Strategies?

  • March 30, 2005
  • Rob Hanna


The market had a nice bounce today.  It wasn’t
nearly enough to change anything.  Below is the market breakdown that I provide
at the end of each month…

Positives
– none

Neutral —

Sentiment
— Sentiment by several measures has not begun to reach extreme levels.  For
bearishness to increase significantly it will likely take additional selling. 
As of now, sentiment is not providing a significant edge either way.

Negatives –

New Highs vs. New Lows
— As the market has turned down, new lows have begun to match, and in some
instances overtake, new highs.  Downside breadth appears to be expanding as the
downtrend is beginning to take shape.


Accumulation/Distribution — There has been a steady
stream of distribution prevalent as the market has consistently sold off on
higher volume and bounced on lower volume.  This is a big negative and must
reverse before any significant rally can take shape.

My shrinking watch
list — The number of stocks making it through my scans
each weekend has shrunk consistently the last few weeks.  On top of that, the
number of quality stocks that are near completing basing formations has also
shrunk.  Any rally at this point would have a hard time finding leadership.

UUWNHI (Unnofficial,
Unscientific, Working / Not working Hanna Indicator)
-  Trading has been extremely challenging lately.  Breakouts are few and those
that have broken out have failed to follow through in any meaningful way. 
Breakdowns haven’t yet begun to pay off significantly since the downtrend is not
yet well established.  The most fruitful opportunities as of late have been in
topping patterns as leading groups and stocks have broken down.  I would expect
a bit more opportunity in this area.  Should the downtrend continue as expected,
the best short opportunities will shift from topping patterns to breakdowns.

Foreign Markets
— Foreign markets have really taken it on the chin the last few weeks.  I am
hard pressed to find any global equity market with a good-looking chart. 
Commodities-based markets, emerging markets, Asia and Latin-America have been
hit especially har

Summary

As I’ve been saying for the
last few weeks, all indications are that the market has put in a significant
intermediate-term top.  I would expect the selling to continue.  While there is
no telling for sure how far a trend will go, I believe things are going to need
to get worse before they get better.  All indications are that we are still
closer to the top than to a bottom.  Keep this in mind when risking capital. 
Remember, bear markets act differently than bull markets.  Be prepared to begin
instituting your bear-market strategies.

Best of luck with your trading,

Rob


robhanna@comcast.net

 

 

 

 

 

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