What is Your Secular Bear Market Plan

From 1990 to 1997, Kevin Haggerty served as Senior Vice President for Equity Trading at Fidelity Capital Markets, Boston, a division of Fidelity Investments. He was responsible for all U.S. institutional Listed, OTC and Option trading in addition to all major Exchange Floor Executions. For a free trial to Kevin’s Daily Trading Report, please click here.

The SPX declined -9.2% to a 1044.50 low on 2/5/10, but reversed the 1047 200DEMA at the time and closed at 1066.19, as both day traders and swing traders benefited. The SPX has since bounced +3.4% off that low to a 1080.04 high last week and closed at 1075.51, with the .50RT to the 1150.45 cycle high at 1097.47, 50DEMA at 1097.71, and mid-point of the January key reversal bar 1150.45 high and 1044.50 low also at 1097.47, so that is the next significant price symmetry that could curtail this bounce off the 1044.50 low.

The ^IWM^ and ^MDY^ have both traded above their .618RT levels to their 2007 bull market highs from the March 2009 lows, while the SPX 1150.45 cycle high is -6.8% shy of its 1229 .618RT to 1576, and the INDU 10730 high is -4.8% below its 11246 .618RT zone.

 The SPX has advanced +72.5% so far from the bear cycle low of 666.79, which is similar to the 1970`s reversals off their cycle lows. The 5/26/70 cycle low reversed and topped out at +73.5% on 1/11/73, while the 10/3/74 cycle low reversed and hit its cycle high at +73.1% on 9/21/76.

 The 1970 bull cycle advance was 30 months, and the 1974 bull cycle was 26 months, while the current cycle advance is just shy of 11 months. The short time cycle for the current vertical +72.5% advance is not unusual, because it follows the “Panic of 2008” 6-month decline in the SPX from 1210 to the 667 low on 3/6/09, and the current reversal up is at about the same angle as the “Panic of 2008” decline.

The initial index proxy position bought in the Feb/March 2009 panic has been reduced by 50% into the 1121 .50RT zone to 1576 from 667, and the 1140-1150 key price zone. It is a secular bear market, and most investors are going to get caught again in the next significant downturn accelerated by the unsustainable socialist policies of the current government in Washington.

Buy and Hold investors make money in secular bull markets, but not secular bear markets like we are in now that started in 2000, and they generally run about 17 years. The 1965-1982 period was a secular bear, followed by the secular bull from 1982 to 2000, and we are now in a secular bear, so what is your plan to reduce equity allocation? Or are you going to do nothing and wish for the hope and change which is not on the horizon in a positive way.

Have a plan!

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