Its a Bear Market You Know…

After a 10% correction in 4 weeks, people start to open their 401K statements and panic.

I don’t care about tips – that is, I never ask other people for what they’ve heard or what they think. When someone gives me a tip, I always ask them very politely, “Why do you believe that? What is your signal?” When the tip turns out okay I thank the tipster, but if it goes wrong, I never whine.

Trolls like to attack me. They jump to conclusions based on a few trades. But believe me, I’m donating much to brokers in the way of commissions. My primary influences were Nicolas Darvas and William J. O’Neil and the school of trend following,but I have grown and evolved from their philosophies.

Many unprofitable traders are eager to be told what they need to buy and when they need to sell instead of developing a trading plan and trading system that fits their personality. Too many traders want to be told what to do instead of learning to trade.

Many on social media ask: “What do you think I should do?”

My answer is, “You know, it’s a bear market!”

Time and again I will be saying, “Well, this is a bear market, you know!” as though I am giving you priceless  advice wrapped up in a million-dollar accident-insurance policy. I hope traders get my meaning.

The money in this market is made through shorting rallies. Even selling into a plunge is starting to work. The best position for the majority of traders in a bear market is cash. Especially for retirement accounts, cash is king. Bear markets don’t trend as smoothly downward as bull markets trend upwards. Downtrends are interrupted by strong rallies as short covering, dip buyers, and bargain hunters converge. If you want to trade a downtrend you have to be fast.

In bear markets, stocks eventually go down. What stock do I like here? None. Stocks as an asset class are being distributed. This is too early for an investment and the market doesn’t care about a stock’s fundamentals. This isn’t a time to buy,  it’s a time to trade or a time to wait.

If you want to buy something just wait, it will be cheaper.

But I’m insistent that you protect your trading and retirement accounts. It’s a bear market, you know. Focus on not losing money. Look for signals and reasons to start buying stock again when price confirms that it’s time and not before.

I learned the hard way in 2000-2002 that you don’t buy dips and hold long side positions for very long in downtrends. Lows get lower and support levels fail. The money in bear markets is in selling rallies short and not buying the dip. You can beat most investors and traders in a bear market by going to cash and being patient.

I think it was a big leap forward in my trading education when I realized that bear markets gave back much of my bull market profits. The short side and cash is the best edge during downtrends, rather than trying to predict a bottom or catch a falling knife. Capital preservation is the game during strong market sell-offs; not being a hero.

It’s a Bear Market you know…