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posted on 17 February 2016

There Is No Such Thing As An Official Standard For A Bear Market

by Lee Adler, Wall Street Examiner

The SPX made new closing and intraday lows today, reconfirming that this is indeed a bear market. The media claim that a 20% decline is an "official" bear market is pure Wall Street BS. There is no "official" percentage standard for what constitutes a bear market.

It's a big lie. What "official" body sets the standard? And in a world where different markets have widely different betas and standards of volatility, by what stretch of the imagination would a universal standard apply to all markets, all instruments, and all commodities. It's absurd on its face, yet the media keeps repeating this nonsense ad nauseam. They're idiots. They're clowns, and lazy stooges for the Wall Street establishment. And it's at your expense.

Goebbels said to make the lie really big and repeat it often, and soon enough everyone will accept it as truth. That's what the 20% rule for a bear market epitomizes. A coterie of financial media PR flacks kept repeating it, and eventually everyone accepted it as truth.

But bear markets are matters of price patterns and time, not percentages. A hundred or more years ago, Dow, Hamilton, and Rhea never once mentioned any percentage when defining a bear market. Instead they made it a matter of the Dow Industrials and Rails making a secondary low lower than the last low after lower highs, and that each Average must confirm the other. They were never intended as timing tools, but the standard they set is far more reasonable in identifying a bear market than a straight percentage. They incorporate price direction, pattern, and time, not percentages. By the standards of direction, pattern, and time, the US market has been in a bear market since July of last year. That's when both the Industrials and Transports had made new secondary lows. The S&P 500 confirmed resoundingly in August.

Since the early 1980s when I first started using computerized indicators to track price momentum and cycles, we have the benefit of knowing that momentum precedes the trend. Momentum slows first, then prices break down later. Very long term momentum and cycle indicators began to roll over in mid 2014. Late that summer is when I was first able to warn that the market was building a major top.

We also have the benefit of knowing from more than a century of price charts of modern markets that tops take from about 10 to 18 months to unfold before prices break down. Accordingly I wrote in the latter part of 2014 that a final price high would probably come in mid 2015, and that the market would head into a bear market after that.

This is not rocket science. We know that history rhymes. There are differences from one era to the next, but there are sufficient similarities that if we are paying attention, we can recognize the process as it is happening. The formation of bear markets are part of a process of the shift in long term momentum leading to a downtrend in prices. With lower highs and lower lows since last summer, we are now in a major downtrend. Call it whatever you want. If you want to wait until it's down 20% to call it a bear market, that's fine with me. But if you haven't sold by now just because you are waiting for it to be down 20%, that's just stupid.

What possible purpose does it serve for Wall Street to pretend that there's an "official" standard for a bear market, and that it's 20% down? That one is easy to answer. They want to keep YOU and everybody else from selling so that they can distribute their inventories into an orderly market, without having to take too much of a market. They want to keep YOU and all their other customers, especially institutions, IN the market buying on the way down so that they can short stock to you. Once they have built large enough short positions, they pull the plug by pulling their bids, letting prices fall while they pile up profits on their short inventories.

Then when the S&P 500 or the Dow is finally down 20% and their media stooges declare an "official" bear market, you can bet your last dollar that, as the public panics, a capitulation low will be set within a few days and a decent sized intermediate term bear market rally will unfold from there. It will be just another bear market rally that fools the majority into going back to sleep as their portfolios depreciate.

Meanwhile back at the cycle projection department, the 4 week cycle projection is now 1700-1750 due in a week or two. The 6 month and 10-12 month cycle projections are 1720 and 1750 respectively. Those projections are still in flux. A 6 month cycle low is ideally due by the end of March.

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