Bear market dynamics

P

promagma

For those who were around during the bear market of 2001-2003, maybe you can answer this.

This bear market we have seen waves of capitulation in one sector after another, where the stocks easily dump 10-20% day after day. In July it was RAS, CIT, RDN, WM, homebuilders, etc. Now, it the casinos, LEH, WB, and some stocks in commodity & oil sectors are starting .... WLT, CENX, UPL, etc.

Does a bear market tend to work like this all the way down, or would it not be surprising to see a period where everything is just grinding downward, without all the chaos?
 
Bear markets are never "easy". The weakest sectors tend to get trashed first and then it spreads to progressively stronger sectors. Ultimately, there is nowhere to hide on the long-side of the market. Anybody who takes comfort in diversification is a fool. There can also be a lot of vicious short-covering rallies along the way which can make it tough to maintain short-positions. The "final bottom" should coincide with a massive one or two-day flush out. We'll see how it plays out. :cool:
 
Quote from nazzdack:

Bear markets are never "easy". The weakest sectors tend to get trashed first and then it spreads to progressively stronger sectors. Ultimately, there is nowhere to hide on the long-side of the market. Anybody who takes comfort in diversification is a fool. There can also be a lot of vicious short-covering rallies along the way which can make it tough to maintain short-positions. The "final bottom" should coincide with a massive one or two-day flush out. We'll see how it plays out. :cool:
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I'll second that with a slight change: Final bottom COULD coincide with (blank). Fill in the blank. I've never liked bears in my last 42 years of the market. Always seems to "different this time." T-bills might be the ticket this time. ag
 
So many stocks making swings of 5-10% today. Reminds me of the action in Feb. 2008. So if we can have these bursts of volatility until the bear runs it's course .... sounds good to me .... I actually had a really good week this week. The action is very different from when I was trading in 2006 and early 2007.

It seems that a bull market is just having no reason to go down, and a bear market is waves of panic.
 
The same generic rules apply in Bear markets as Bull markets. My post only focusses on SHORT trading

You do make money at a higher money velocity, however.

From general to specific, your maintenance of context goes like this.

Sector rotation.

In the Bull market the line in the sand is rising sectors just at the time BEFORE they begin their price rise. Leaders peel out first and high quality laggers are traded. Both are detectable based on volume leading price.

Do the same analysis and instead of looking for "green" (meaning longs), look for reds (meaning reds)

In sector analysis you are "reading" a frequency measure on the sector. By sure in your TA scanner to have an FA column component that reveals the sector frequency.

The leader-lagger phenomena would seem to hinge on Q but it doesn't, it hinges on investor/trader sector preferences.

Always be sure to think in terms of Beta as well. High beta is what makes money and shortens the cycle periodicity.

Position Trading

High QA still rules as in Bull market trading. trading to make money at high velocities is not a thing where dealing in concept opposites prevails. Orthogonality prevails as in energy transfer from one dynamic aspect to another dynamic aspect.

The power law applies to long and short money velocity opportunities. Time is the measure for equal profits. 8 short time units equal 27 long time units.

Volume precedes price symmetrically long or short. Use the P, V relationship. There is a move from distribution to accumulation at the beginning in both cases and it is largely because poor trader/investors DO NOT recognize the real trend in a SHORT trend beginning. This is where most CW fails and gives the TA guys a real advantage over sales oriented market recommendations (broker recommendations). Jim Cramer is often a victim in this scenario; it is one of his primary faults in making calls.

Commodities

As expected there is nothing to say since commodities trading is done with a neutral bias.

If a person is using edges (I ordinarily speak from the pool extraction algorithm) there is an excellent chance he is biased in a non neutral manner. So he is screwed in a Bear market and everything is "BAD". Most edge traders do not know the difference between a retrace and a reversal. And if they are also long biased, they are going to edge trade their way to a 0 balance quite quickly in a Bear market. Watch zdawg diminish his capital at 25% a week for example.

In channels and with respect to their overlap, the overlap is always filled with a retrace. As overlap ends, then the reversal begins. Naturally, intermediate traders and above do the turn at the beginning of the retrace and hold through the end of the overlap to get the hign money velocity beginning of the reversal as overlap ends. All of this is done with certainty and no probability. A beginner can do it too as a forest level trade.
 
I've been Grobbed! First time! Thank you Jack ... cheers ...

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