Image Source: DepositPhotos

It's been quite a while since I posted something like this but the time may be close to raising the issue of a true bear market in stocks. Whatever the fundamental/real economy/geopolitical reasons might be, the market is the market and it will do what it will do for reasons that may not be apparent (or even reasonable) at the time. That being said, here's a market metric that has worked time and again for the past 30 years. I call it the Mega Trend.

When price crosses both the 50 and 200 day moving averages AND the 50 day crosses the 200 day AND the slope of both averages point in the direction of the cross, then the Mega Trend is set. To confirm that trend a 3 month period must be pass before that trend signal can be considered valid. Without all three conditions being met, far too many false signals are generated.

The top accompanying chart shows the current situation. The bull has been in charge for the past two years with price above the moving average and the 50 day above the 200 day. What has changed, however, the slope of both averages is no longer upwardly sloped. The 50 day is trending down and the 200 day is flat. If price remains below both average and should the 50 day cross the 200 day AND both averages slope downwardly then a preliminary bear signal is triggered and the 3 month clock starts ticking. Now look at the bottom chart. Note how in 2020 the downward cross occurred (red arrow) only to be reversed in 3 months (green arrow). What you see has repeated itself every single time since the 2008/09 GFC.

To be clear: a bear market - like a bull market - is NOT some numerical figure (>20% from the high). It is a sustainable trend in a given direction that results in a percent total that is substantial. If US stocks generate a bear signal in the coming days and weeks then it is advisable to wait the requisite 3 months to see if the signal holds. The last time the bear held was in 2008/09. Every time since - 2010, 2011, 2015, 2016, 2018/19 and 2020 - a reversal occurred in 3 months. Every reversal could be attributed to a Fed put. This time, however, it looks like there may not be a Fed put coming to the rescue. Stay tuned.