THE BEAR GROWLS - STOCK MARKET RULES

Of course, there is—there is always the specter of a bear market on the economic horizon. It’s as true as the fact that some investors believe the Dow Industrial Average will drop below 2,000 again. Many who believe the bear is hiding around the corner don’t even have a clear definition of what makes a bear.

WHAT IS A BEAR MARKET?
Actually, there are several definitions of a bear market.
A Classic
A bear market is a time when securities prices are steadily declining for a period of weeks, months, and sometimes years.
Trader Vic’s Bear Market
A long-term downtrend (a downtrend lasting months to years) in any market, especially the stock market, characterized by lower intermediate lows (those established in a time frame of weeks to months) interrupted by lower intermediate highs.
Marty Zweig’s Bear
A bear market is a decline of at least 15 percent in each of three important stock averages: the Dow Jones Industrials, the S&P 500 Index, and the … Value Line Index.
Another Classic
A bear market is a decline in the Dow Industrial Average of 20 percent or more. It can also be a time when the Dow Industrial Average is down (from established highs) for more than two consecutive months.
Keep in mind that newscasters and analysts will talk of “bearish” moves in the stock market. They do not necessarily mean that the stock market has become a bear market. Virtually all corrections or secondary market downtrends are referred to as “bearish.”

WHAT’S THE TREND?
A bear market represents a downturn in the long-term trend. Most of these trends are short-lived. They might last from three to six months. Only a few last more than a year, the most notable being the bear market from October 1929 to July 1932.
One of the problems with the crash of 1929 was the fact that many companies went out of business, either because of the bear market or the economic climate that followed. Most, in 1998, have viewed the economic climate as positive, with this most recent market acceleration. However, there is a problem with the Asian economic crises.
A Word of Caution


The bear market of 2001 through early 2003 was a well-defined down
primary trend. The turn was clear-cut, as was the primary uptrend of
2003 to early 2004 (Figure 1). Then things got muddy. A train
bombing in Spain and a terrorist threat letter sent the markets into a
tailspin that broke down through the uptrend line. Once the primary
uptrend line is penetrated, many investors become nervous wondering
whether it is just a secondary trend or in fact a real turn in the primary
trend.

THE MARKET DOESN’T USUALLY WAIT
If there is a strong enough belief that a recession is coming, the stock market probably won’t wait to send a signal. For that matter, the recession probably won’t wait either. Recessions have a tendency to move just ahead of the current economic situation. Although they seem to be always looming in the future, if the right moves are made, the recessions often don’t materialize.
THE BEAR GROWLS
Comments from an important figure like Federal Reserve Chairman Alan Greenspan can throw the stock market into turmoil. Who benefits from the warnings?
When the Fed acts by raising or lowering interest rates, everyone listens. Actions speak louder than words, and the stock market is most sensitive to changes in interest rates.

BEAR MARKETS—BUYING OPPORTUNITIES
They certainly have been buying opportunities in the past, with some notable exceptions.
The 1929 bear saw several companies go out of business. The way to avoid such difficulties is to choose stocks carefully and wait for some signs of stability. However, a wait can be difficult because of the speed the market can recover. Waiting too long leads to missed opportunities.