While the generally accepted definition of a bear market is a 20% decline over a two month period. I am referring to just being bearish, believing the market will go down, seeing signs of a down trend before you are sitting with a 20% decline in your accounts or more while holding what were market leading stocks that are now spiraling downward. Defense and keeping your bull market profits during corrections and bear markets will improve your stock market performance more than just about anything.

  1. The market begins to gap up in price in the morning at the open but ends up closing lower each day for multiple days.
  2. Previous stocks that were leaders are struggling to hold their 50 day moving averages, many are trading below their key 50 day moving average.
  3. The market as measured by the SPY  ETF (exchange traded fund) is trading below its 200 day simple moving average and the 200 day is beginning to slope downward.
  4. There is a lot of uncertainty about the future in the overall economy.
  5. The total market along with individual stocks keep having trouble finding support at specific levels but continually have very defined resistance levels in price.
  6. The market is making lower highs and lower lows over multiple days.
  7. There is a lot of fear about some event that may or may not happen and their is a wait and see attitude.
  8. Money is flowing out of mutual funds and into bonds in large amounts.
  9. Talking heads are trying to convince people to buy stocks, that they are now a great ‘value’.
  10. Consumer staple type  stocks start being the best performers, Wal*Mart, McDonalds, and Dollar Stores along with utilities.

When all these things line up it is a high probability you will win by selling short at price resistance points, buy puts, and take retirement accounts to cash that do not let you buy reverse ETFs. This is a time to be cautious.

No matter how great a company is or how amazing their earnings, a bear market is like a hurricane, it damages all boats regardless of how great they are. Defense is the best policy until price action finds key support and makes higher highs.