The Bear’s Eye View Of Two Bear Markets

Let’s begin this week with the daily bars chart for the Dow Jones (DIA). What’s there to say except since February 21st, market volatility has become historic. This week from Monday’s close to the close of Thursday (the high of the week) the Dow Jones advanced 3,960 points, or 21.3% in just three trading sessions!

During the bull market it may have taken the better part of a year to advance the Dow Jones by 21.3%. Now looking at the Dow Jones below, we see a three day 21.3% advance from Monday’s to Thursday’s close? Does that look bullish to you; that things will soon be back to normal? Really? 

C:\Users\Owner\Documents\Financial Data Excel\Bear Market Race\Long Term Market Trends\Wk 645\Chart #1   DJIA OHLC.gif

People really don’t like change, so they’re slow accepting it when it comes. Point being before the huge increase in volatility in late February, people (including me) would have a hard time accepting the volatility seen in the market we’ve now had for the past five weeks. In the first few weeks of this market decline, people were most likely feeling more than a bit uncomfortable. But now in week five of this bear market we’ve accepted the change and now feel comfortable with it; especially after a week as we’ve had this week.

Meaning, if you’re getting bullish on this market; well you shouldn’t be as the stock market never advances as much as it does during bear markets. Mr Bear is just getting started, and he has as much time as it will take to complete his program of market hygiene.  

And what is Mr Bear’s program of market hygiene? I Recall the attitudes of personal finance of my grandparents who survived the Roaring 1920s and depressing 1930s during a time of their lives where they were raising children. On my father’s side as city dwellers and on my mother’s as North Dakota sharecroppers during the dust bowl days; later in life they were very reluctant to take on debt. If possible, they’d save money to pay cash for things like cars or they went without.

And it wasn’t just them. Until the baby boomers came of age in the 1970s, thrift was a virtue. Fifty years later all too many people don’t know the definition of thrift, let alone how to practice it.

That’s a bad attitude that’s resulted in most people now reaching retirement age to be completely unprepared for a few months of self-quarantine, let alone actual retirement. 

We live in a world where people are more concerned about maintaining their credit scores than achieving financial independence. A humble financial independence has little appeal in today’s world. People for decades have chosen to leverage their income with more debt than is good for them to enable a better lifestyle in an upscale community or to just own a prestigious automobile. What other option do they have? Living debt free in a modest neighborhood just isn’t what people do.

These are the people Mr Bear is going to target during this bear market, and that goes for corporations and local governments that have also lived beyond their means via debt these past decades.

We really don’t understand what this bear market is all about. Every week I show charts of market valuations and interest rates to illustrate what Mr Bear is doing. But big-bear markets are actually about correcting the bad habits people and society have taken on during the good times. By that standard; in March 2020 there remains a lot of error for Mr Bear to correct, and the stock market is going to suffer for it in the next few years.

Most people would look at the Great Depression bear market and see how it had deflated the Dow Jones 89% from 1929 to 1932, and that’s true. But during the Great Depression’s market crash Mr Bear changed people’s perspective on debt and credit long before the Dow Jones saw its ultimate bear market bottom in July 1932. I expect the same will be true for our big bear market before it hits its ultimate market low sometime in the future.

Okay, all that was interesting, but how did the stock market do this week? Looking at the BEV values for the major market indexes I follow below, they all did good. Maybe this week’s advance is the dead-cat bounce I was expecting. If it is, it will be only a sucker’s rally.

One thing I got 100% correct was that the advance that began in March 2009 would terminate should daily volatility for the Dow Jones (2% days) begin to pile up in the Dow Jones 200 count. As seen below, that is exactly what has happened. And it doesn’t matter whether those extreme days advance or decline by 2% or more from a previous day’s closing price (or a three day 21.3% advance), rising volatility in the stock market is ALWAYS BAD.

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