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.

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.

We are in a manipulated bull market

There is an interesting article on how greed at Goldman Sachs is linked to ruin of millions of people and economies.

George Bush’s last Secretary of the Treasury was a former CEO of Goldman.
Bill Clinton’s Secretary of the Treasury, Robert Rubin, spend 26 years at Goldman before becoming Chairman of Citigroup and they got 300 billion from Paulson.
Goldman employees paid nearly $1 million to elect Obama.

The entire article is here:

http://www.correntewire.com/great_american_bubble_machine_0

Strange phenomenon

In rising (bull) markets, people are hoping for a correction because they didn't get the change to buy.

In falling (bear) markets, peope are hoping for the market to rise because they didn't get the chance to sell.

As I write this article the Nifty Futures is trading at 4669.

Most people are nodding wisely and saying the market will correct. What if it continues to 6000? These people will eventually jump on only to find the market fall after they have jumped on. This cycle will keep repeating itself.