Bull Markets Roll, Bear Markets Spike

There is an old saying that “bull markets roll, but bear markets spike.”

In a bull market, most investors are long-only. They are happy, The bull market thus “rolls” along, as more bullish investment capital flows into the market and positions are added to.

In a bear market the case is different. Very few people are ready to go short. So many people are angry. The result is a spiky profile where declines are interrupted by surprisingly vicious rallies of short duration.

These mini-rallies are made more vicious by the forced activity of “short covering,” in which bearish traders get “squeezed” out of their positions by the fighting spirit of the bulls.

The great gold rush

If the downmove in the Dow materialises, gold and all asset classes will fall in tandem. In 2008, when the Dow and all global indices was crashing, gold fell from $936 on October 8th to $681. So be careful before piling into gold

Currently most indices are testing their 200 DMA. So the tussle around the Nifty 4750-4830 level continues. This should get resolved in the next few days. Let the market advise us where it is headed to in the short term.

The Big Fight at 4800

Bulls and bears are having an awesome fight at Nifty 4800 levels. The bears are not letting the Nifty cross 4800. Its an interesting and crucial battle.

Volatility has increased as demonstrated by the VIX. This is a critical part as the mood is now changing from bullish to bearish. The next few days are very interesting. Enjoy!

4800 needs to be broken to see 4500

A Nifty close below 4800 can make us see 4500....Market is looking weak and exhausted...All indicators are looking bearish...even on higher timeframes like weekly and monthly charts...generally weekly and monthly charts give fewer and better signals...although there is a slight lag...Everything in life has a tradeoff.

I think its a matter of time before we see 4500 and lower levels...this is a market to short on rallies rather than buy on dips...but then its all a game of probabilities...keep your stops and enjoy the ride if it materialises

Nifty still bearish - 4950 is key resistance

Nifty gapped up today near the 4950 levels and ended the day significantly in the red. 4950 is proving to be a key resistance. A close below 4800 will further reinforce the fact that the bears have taken control with 4500 as the next target.

Nifty target of 3800 if downmove materialises

If this downmove is to materialise the next Nifty support is at 4800, then 4500 with a target of 3800

Possible start of correction - anniversary of Jan 2008 crash

Nifty could be starting the correction of the rally which started from March 2009. A close below 4950 would further reinforce this bearish outlook. Please exit all longs in stocks and mutual funds as 3500-3800 is the target of this downmove.

A disclaimer: Nifty could rebound sharply and once again go upwards above the 5000 mark as has happened 3-4 times in the past. As an investor would you like to risk last 9 months gains for some limited potential upside? The choice is yours.

For traders keep your stops and enjoy the downswing if it deepens.

A big coincidence is we are now celebrating the 2nd anniversary of the Jan 2008 crash. What an apt time for the bears to take grip again!

Decade of negative returns in US

While the media is now proclaiming 2010 to be a bull run for the S&P, it is wothwhile to consider how buy-and-hold worked out for investors in US:

The Dow ended 9% in the red, the S&P 500 - 24%, and the NASDAQ Composite - 44%.

If you were to learn just one thing from this blog remember these golden word:

" When everybody arond you is bullish exit all longs and prepare to go short.
When everybody is bearish, exit all shorts and build up long positions"

Investors in India are very bullish and I think the long term bull picture is intact in India for the next 5-6 years. But when things turn down it won't take long to erase the gains made over the last many years. If one follows the above golden rule one can save oneself from a lot of financial carnage.

Dollar Index

The dollar index has broken above its 50 day moving average. From the chart above notice the inverse correlation between the dollar index and the equity markets. When the dollar index rallies the equity markets crash and vice versa.

Another sign that a top could be in place and we are all set for the next leg down of the bear market.

Is Dubai the next bubble to go bust?

Dubai is on the verge of defaulting on its 50 billion pound debt. This could be the latest bubble and trigger off the next down leg in the market.

http://www.thefirstpost.co.uk/56620,business,is-dubai-about-to-default-on-its-50bn-debt

All around we are surrounded by bubbles. Gold, crude oil, stocks. When the next leg of the bear market gets underway it is going to be a bloodbath.

Société Générale tells clients how to prepare for potential 'global collapse'

http://www.telegraph.co.uk/finance/economics/6599281/Societe-Generale-tells-clients-how-to-prepare-for-global-collapse.html

What is a bear market?

Anyone who invested in stocks in mid-1929 in US and held onto them would have to wait for almost his entire life before getting back to even.

Most people have only seen bull markets in the last 30-40 years and hence the bullish bias in analysts.

A prolonged bear market can be brutal and destroy a person's lifetime of investments. Today nobody can say with 100% certainty whether the current rally is a new bull amrket or a bear market rally. The nifty can be testing 2200 soon or could be touching 7000 also. We should be ready for either scenario.


All asset allocation decisions should include a strategy to profit fom falling markets.

50% US mortgages underwater by 2011

The next wave of declines in the housing market in the US seems ready to unveil.
About half of US mortgages will have negative equity (price of the house less than the amount owed to the bank) by 2011. The entire article can be read here

http://www.reuters.com/article/businessNews/idUSTRE5745JP20090805

The bear market in the USA might be here to stay!