With respect to where to re-enter the stock market during (or after) a bear market, lets closely look at a very interesting study of the only two bear markets in the last 26 years.
This study attempts to help answer the question:
"When is it safe to re-enter the stock market during or after a bear market?"
Our choices are:
(A) A definitive close above the monthly 20ma.
(B) A definitive close above the monthly 40ma.
(C) -50% drop from the all time bull market high.
{First Bear Market in the Last 26 years}
(40ma Exit)
[Our first Bear Market chart of the SP500 below encompassed the time from 1999 to 2007, monthly candles, 20ma and 40ma.]
1A: Notice that following a long bull market, the first definitive monthly close below the 40ma was on February 2001 on the SP500 at 1240.
1B: The market continually dropped to a low of 775 on October 2002.
1C: By exiting stocks on the close below the 40ma, a -37.5% drop was averted.
(20ma Re-entry)
2A: Now notice your first definitive monthly close above the 20ma was on July 2003 at 985.
2B: From a market re-entry of 985, a bull market ensued to a high of 1575 on October 2007.
2C: From a re-entry at 985 to the Oct 2007 high the SP500 gained +59.89%.
2D: Using the 40ma exit at the start of the next bear market, the 20ma entry strategy for the next bull market would have a gain of +29.94%, in addition to avoiding the heartbreak of the -37.5% bear market drop below your bear market exit point.
(40ma Re-entry)
2A: Now notice your first definitive monthly close above the 40ma was on Dec 2003 at 1120.
2B: From a market re-entry of 1120, a bull market ensued to a high of 1575 on October 2007.
2C: From a re-entry at 1120 to the Oct 2007 high the SP500 gained +40.62%.
2D: Using the 40ma exit at the start of the next bear market, the 40ma entry strategy for the next bull market would have a gain of +14.28%, in addition to avoiding the heartbreak of the -37.5% bear market drop below your bear market exit point.
(-50% Re-entry)
2A: -50% from the all time bull market high (1550) occurred on October 2002: SP500 at 775.
2B: From a market re-entry of 775, a bull market ensued to a high of 1575 on October 2007.
2C: From a re-entry at 775 to the Oct 2007 high the SP500 gained +103.22%.
2D: Using the 40ma exit at the start of the next bear market, the -50% entry strategy for the next bull market would have a gain of +65.16%, in addition to avoiding the heartbreak of the -37.5% bear market drop below your bear market exit point.
[SP500, 1999 to 2007, monthly candles, 20ma and 40ma]
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{2nd Bear Market in the Last 26 years}
(40ma Exit)
[Our second Bear Market chart of the SP500 below encompassed the time from 2007 to our
current date in 2019, monthly candles, 20ma and 40ma.]
1A: Notice that following a long bull market, the first definitive monthly close below the 40ma was on June 2008 on the SP500 at 1280.
1B: The market continually dropped to a low of 666 on March 2009.
1C: By exiting stocks on the close below the 40ma, a -47.96% drop was averted.
(20ma Re-entry)
2A: Now notice your first definitive monthly close above the 20ma was on Nov 2009 at 1100.
2B: From a market re-entry of 1100, a bull market ensued to a high of 2940 on Sept 2018.
2C: From a re-entry at 1100 to the Sept 2018 high the SP500 gained +167.27%.
(40ma Re-entry)
2A: Now notice your first definitive monthly close above the 40ma was on Oct 2010 at 1195.
2B: From a market re-entry of 1195, a bull market ensued to a high of 2940 on Sept 2018.
2C: From a re-entry at 1195 to the Sept 2018 high the SP500 gained +146.02%.
(-50% Re-entry)
2A: -50% from the all time bull market high (1575) occurred on Nov 2008: SP500 at 788.
2B: From a market re-entry of 788, a bull market ensued to a high of 2940 on Sept 2018.
2C: From a re-entry at 788 to the Sept 2018 high the SP500 gained +273.09%.
[SP500, 2007 to present time in 2019, monthly candles, 20ma and 40ma]
