Global Economic Intersection
Advertisement
  • Home
  • Economics
  • Finance
  • Politics
  • Investments
    • Invest in Amazon $250
  • Cryptocurrency
    • Best Bitcoin Accounts
    • Bitcoin Robot
      • Quantum AI
      • Bitcoin Era
      • Bitcoin Aussie System
      • Bitcoin Profit
      • Bitcoin Code
      • eKrona Cryptocurrency
      • Bitcoin Up
      • Bitcoin Prime
      • Yuan Pay Group
      • Immediate Profit
      • BitIQ
      • BitQH
      • Bitcoin Loophole
      • Crypto Boom
      • Bitcoin Treasure
      • Bitcoin Lucro
      • Bitcoin System
      • Oil Profit
      • The News Spy
      • Bitcoin Buyer
      • Bitcoin Inform
      • Immediate Edge
      • Bitcoin Evolution
      • Cryptohopper
      • Ethereum Trader
      • BitQL
      • Quantum Code
      • Bitcoin Revolution
      • British Trade Platform
      • British Bitcoin Profit
    • Bitcoin Reddit
    • Celebrities
      • Dr. Chris Brown Bitcoin
      • Teeka Tiwari Bitcoin
      • Russell Brand Bitcoin
      • Holly Willoughby Bitcoin
No Result
View All Result
  • Home
  • Economics
  • Finance
  • Politics
  • Investments
    • Invest in Amazon $250
  • Cryptocurrency
    • Best Bitcoin Accounts
    • Bitcoin Robot
      • Quantum AI
      • Bitcoin Era
      • Bitcoin Aussie System
      • Bitcoin Profit
      • Bitcoin Code
      • eKrona Cryptocurrency
      • Bitcoin Up
      • Bitcoin Prime
      • Yuan Pay Group
      • Immediate Profit
      • BitIQ
      • BitQH
      • Bitcoin Loophole
      • Crypto Boom
      • Bitcoin Treasure
      • Bitcoin Lucro
      • Bitcoin System
      • Oil Profit
      • The News Spy
      • Bitcoin Buyer
      • Bitcoin Inform
      • Immediate Edge
      • Bitcoin Evolution
      • Cryptohopper
      • Ethereum Trader
      • BitQL
      • Quantum Code
      • Bitcoin Revolution
      • British Trade Platform
      • British Bitcoin Profit
    • Bitcoin Reddit
    • Celebrities
      • Dr. Chris Brown Bitcoin
      • Teeka Tiwari Bitcoin
      • Russell Brand Bitcoin
      • Holly Willoughby Bitcoin
No Result
View All Result
Global Economic Intersection
No Result
View All Result

Do You want to Ride Through another Bear Market?

admin by admin
August 25, 2011
in Uncategorized
0
0
SHARES
14
VIEWS
Share on FacebookShare on Twitter

bear_market by Macrotides

Editor’s note: The market timing methodology described is proprietary.  We are sharing the results Macrotides has published as a demonstration of a risk control process that has a good track record.  Readers are encouraged to become students of the markets and make sure they determine what risk control process might be best for them.  To contact Macrotides, use the e-mail address in the About the Author section at the end of the article.

My technical work and fundamental analysis suggests a bear market began in early August.

First, let’s review how a number of large well known mutual funds performed during the bear market declines of 2000-2003 and 2008-2009.  These funds were all rated by Morning Star with 4 and 5 stars. The S&P 500 lost -12.02% in 2001, gave up -22.15% in 2002, and plunged by -37.02% in 2008.  The performance of the funds we will show shortly during these bear market years reaffirms that most stocks trend with the overall market, and are thus vulnerable to market risk.

Traditional asset allocation relies on diversification to manage market risk.  The results during these bear markets shows it does a poor job, at least for the examples shown.

macrotides-2011-8-25-1

macrotides-2011-8-25-2

Investment Strategy During a Bear Market

Most investors remain invested during a bear market because their advisor or financial planner does not have the tools needed to navigate the market swings that often occur in a bear market.  We have done extensive research in how to manage the volatility associated with bear markets.  Our investment program’s primary focus is preservation of capital based on a simple philosophy:  “The best way to make money is not to lose it.”

We will walk you through our process to show how it can help you avoid the losses normally associated with a bear market.  We developed the Major Trend Indicator to lower market risk, which traditional asset allocation does not address.  The Major Trend Indicator has indicated that a bear market began on August 9, 2011.  Our money management clients were moved 100% out of the market on August 3, 2011, when the S&P 500 was 1250.

Expanation of the Major Trend Indicator in Bear Markets

Market Trend Risk – Investment style risk is most exposed as the stocks of even the best managed companies lose value during bear market declines.  Numerous studies have shown that the overall direction of the stock market contributes 50% to 70% of an individual stock’s price movement.  This was certainly the case during the bear markets of 2000-2003 and 2008-2009.  Traditional asset allocation relies on diversification to provide risk management.  However, diversification performed poorly during recent bear markets.

What’s obviously needed is an approach that addresses market risk and systemic risk, and provides true risk management. We developed the Major Trend Indicator to identify when a bear market has begun, so client funds can be moved 100% out of the market.  The MTI also attempts to signal when a rally within the context of a bear market is beginning.  This provides the opportunity to make money from the long side during a bear market.  At the end of every bear market, there is a rally that begins as bear market rally, but matures into a new bull market.  The benefit of already being invested as the new bull market kicks off is significant.

Bear Market 2000-2003

Let’s review how well the Major Trend Indicator addressed market trend risk during the bear markets of 2001-2002.

The 2000-2003 bear market began on October 11, 2000 based on the Major Trend Indicator.  The MTI gave a bear market rally buy signal in early January and a sell short signal in February as noted with the green up/ red down arrows.  The next buy signal occurred in April, and was reversed in June.  In October 2001 another buy signal was given, which lasted until December.  In 2002, there were buy signals in February and early May, and sell signals in April and late May to reverse each of the buy signals within about a month’s time (or a little less).  There was a large decline in June and July, which caused the market to get extremely oversold as measured by the MTI.

When the MTI reaches extreme oversold readings, it will not accept the first buy signal, i.e. July 2002.  Instead, it waits for the market to retest the prior low, and accepts the subsequent buy signal if it occurs at a less oversold level.  This took place in October 2002.  In March 2003, the MTI was far less oversold than in July and October 2002.  The pattern of the market retesting prior lows after periods of intense selling is fairly common, and was repeated in 2008 and 2009.  The bear market rally buy signal in March 2003 was strong enough to confirm the new bull market in April 2003.

macrotides-2011-8-25-3

Sell Short Signals

After a bear market has been signaled, a sell short signal is not given until after the model has first generated a bear market rally buy signal.  The bear market signal was given in October 2000, suggesting that the major trend was likely to be down in coming months.  A sell short signal is not given at the time of the bear market signal, since the market is often fairly oversold at that point.  The risk of a snap back rally is high, so going short is usually not profitable.  The first bear market rally buy signal occurred in early January 2001.  Sell short signals are generated, when the MTI turns lower and gives a sell short signal.

The first sell short signal was indicated in February, and remained in effect until the next bear market rally signal is generated, which was in April 2001.  After a weak buy signal in July 2001, the MTI gave another sell short signal in August 2001, before September 11, 2001.  This was followed by a fairly strong rally, after the bear market rally buy signal in October 2001.

This process is continued until a bear market rally is strong enough to push the MTI into the bull market zone.  This happened with the bear market rally buy signal in March 2003.  By late April 2003, the MTI was back into bull market territory.  This bull market lasted until the next bear market was signaled on January 10, 2008.

The table below shows the results of every MTI bear market rally buy signal during the 2000-2003 bear market.  In the calendar year, the S&P lost -12.02% in 2001, and -22.15% in 2002.  The bear market rally signals were profitable because the rallies were decent.  The MTI sell short signals were able to capture a portion of the declines during the 2000-2003 bear market.  The figures are based on the Vanguard S&P 500 index fund, which closely tracks the S&P 500.  See caveats at end of article.

macrotides-2011-8-25-4

Bear Market 2008-2009

The Major Trend Indicator signaled that a bear market had begun on January 10, 2008.  The first bear market rally buy signal occurred in February, but was quickly reversed in March.  Another buy signal developed before the end of March and lasted until May.  This was followed by a buy signal in July that reversed in September.  The Major Trend Indicator became extremely oversold in October and November 2008, so no buy or sell short signals were accepted.  In March 2009, the MTI was less oversold than in November, so the buy signal was accepted.

By May, the MTI had strengthened enough to confirm a new bull market.

The table below shows the results of every MTI bear market rally buy signal during the 2008-2009 bear market.  In the calendar year, the S&P lost -37.02% in 2008.  The bear market rally signals were not as profitable as they were during the 2000-2003 bear market because the rallies were weak.  The MTI sell short signals were able to capture a portion of the declines during the 2008-2009 bear market.  The figures are based on the Vanguard S&P 500 index fund, which closely tracks the S&P 500.  See caveats at end of article.

macrotides-2011-8-25-5

macrotides-2011-8-25-6


Caveats

1.  Every bear market is different, so there can be no assurance that the MTI will perform as it did during the bear markets in 2000-2003 and 2008-2009.

2.  Returns do not reflect management fees or potential trading slippage.


Related Articles

Investing Blog articles by Macrotides

Bank of America Goes After Blodget by John Lounsbury

The Week Ahead:  Good News from Jackson Hole? by Jeff Miller

It’s Time to Bail on Bank Stocks by Martin Hutchinson

Investing in a Volatile Market by David Grandey

Gundlach Sees Cusp of a Global Banking Panic by Robert Huebscher

Why the U.S. Credit Rating Downgrade Could Cause a Full-Fledged Market Crash by Jason Simpkins

Death of the Risk-Free Investment by Martin Hutchinson

Is the End Near – Or Is It Different This Time? by Ed Easterling

 

About the Author


Macrotides is a monthly subscription newsletter written by a wealth manager associated with a major Wall Street investment bank. The author’s firm has requested that he not use his name to avoid any incorrect implication that his views might reflect those of the bank. The author has written investment advisory subscription newsletters based on macroeconomic analysis and market technicals for more than 20 years. Enquiries can be made at [email protected].


 

Previous Post

When will Japan Face the Music?

Next Post

Rail Traffic Expands in w/e 20Aug2011

Related Posts

U.S. Treasury Drives Russia Close To Default: What Comes Next?
Econ Intersect News

U.S. Treasury Drives Russia Close To Default: What Comes Next?

by John Wanguba
May 29, 2022
MasterCard CEO: SWIFT Payment System May Be Non-Existent In 5 Years
Business

MasterCard CEO: SWIFT Payment System May Be Non-Existent In 5 Years

by John Wanguba
May 28, 2022
Gap Cuts Profit Forecast As Inflation Drains Demand, Old Navy Staggers
Business

Gap Cuts Profit Forecast As Inflation Drains Demand, Old Navy Staggers

by John Wanguba
May 27, 2022
Microsoft Finally Joins The Virtual World, Unleashes New “Industrial Metaverse”
Business

Microsoft Finally Joins The Virtual World, Unleashes New “Industrial Metaverse”

by John Wanguba
May 26, 2022
Basketball Star “Kevin Durant” Files Patents For 26 New NFTs And Metaverse Apps
Business

Basketball Star “Kevin Durant” Files Patents For 26 New NFTs And Metaverse Apps

by John Wanguba
May 26, 2022
Next Post

Rail Traffic Expands in w/e 20Aug2011

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

Browse by Category

  • Business
  • Econ Intersect News
  • Economics
  • Finance
  • Politics
  • Uncategorized

Browse by Tags

adoption altcoins banking Binance Bitcoin Bitcoin adoption Bitcoin market Bitcoin mining blockchain BTC business Coinbase crypto crypto adoption cryptocurrency crypto exchange crypto market crypto regulation decentralized finance DeFi digital assets Elon Musk ETH Ethereum Ethereum blockchain finance funding government investment market analysis Metaverse mining NFT NFT marketplace NFTs nonfungible tokens nonfungible tokens (NFTs) price analysis regulation Russia social media technology Tesla the US Twitter

Archives

  • May 2022
  • April 2022
  • March 2022
  • February 2022
  • January 2022
  • December 2021
  • November 2021
  • October 2021
  • September 2021
  • August 2021
  • July 2021
  • June 2021
  • May 2021
  • April 2021
  • March 2021
  • February 2021
  • January 2021
  • December 2020
  • November 2020
  • October 2020
  • September 2020
  • August 2020
  • July 2020
  • June 2020
  • May 2020
  • April 2020
  • March 2020
  • February 2020
  • January 2020
  • December 2019
  • November 2019
  • October 2019
  • September 2019
  • August 2019
  • July 2019
  • June 2019
  • May 2019
  • April 2019
  • March 2019
  • February 2019
  • January 2019
  • December 2018
  • November 2018
  • October 2018
  • September 2018
  • August 2018
  • July 2018
  • June 2018
  • May 2018
  • April 2018
  • March 2018
  • February 2018
  • January 2018
  • December 2017
  • November 2017
  • October 2017
  • September 2017
  • August 2017
  • July 2017
  • June 2017
  • May 2017
  • April 2017
  • March 2017
  • February 2017
  • January 2017
  • December 2016
  • November 2016
  • October 2016
  • September 2016
  • August 2016
  • July 2016
  • June 2016
  • May 2016
  • April 2016
  • March 2016
  • February 2016
  • January 2016
  • December 2015
  • November 2015
  • October 2015
  • September 2015
  • August 2015
  • July 2015
  • June 2015
  • May 2015
  • April 2015
  • March 2015
  • February 2015
  • January 2015
  • December 2014
  • November 2014
  • October 2014
  • September 2014
  • August 2014
  • July 2014
  • June 2014
  • May 2014
  • April 2014
  • March 2014
  • February 2014
  • January 2014
  • December 2013
  • November 2013
  • October 2013
  • September 2013
  • August 2013
  • July 2013
  • June 2013
  • May 2013
  • April 2013
  • March 2013
  • February 2013
  • January 2013
  • December 2012
  • November 2012
  • October 2012
  • September 2012
  • August 2012
  • July 2012
  • June 2012
  • May 2012
  • April 2012
  • March 2012
  • February 2012
  • January 2012
  • December 2011
  • November 2011
  • October 2011
  • September 2011
  • August 2011
  • July 2011
  • June 2011
  • May 2011
  • April 2011
  • March 2011
  • February 2011
  • January 2011
  • December 2010
  • August 2010
  • August 2009

Categories

  • Business
  • Econ Intersect News
  • Economics
  • Finance
  • Politics
  • Uncategorized
Global Economic Intersection

After nearly 11 years of 24/7/365 operation, Global Economic Intersection co-founders Steven Hansen and John Lounsbury are retiring. The new owner, a global media company in London, is in the process of completing the set-up of Global Economic Intersection files in their system and publishing platform. The official website ownership transfer took place on 24 August.

Categories

  • Business
  • Econ Intersect News
  • Economics
  • Finance
  • Politics
  • Uncategorized

Recent Posts

  • U.S. Treasury Drives Russia Close To Default: What Comes Next?
  • MasterCard CEO: SWIFT Payment System May Be Non-Existent In 5 Years
  • Gap Cuts Profit Forecast As Inflation Drains Demand, Old Navy Staggers

© Copyright 2021 EconIntersect - Economic news, analysis and opinion.

No Result
View All Result
  • Home
  • Contact Us
  • Bitcoin Robot
    • Bitcoin Profit
    • Bitcoin Code
    • Quantum AI
    • eKrona Cryptocurrency
    • Bitcoin Up
    • Bitcoin Prime
    • Yuan Pay Group
    • Immediate Profit
    • BitIQ
    • Bitcoin Loophole
    • Crypto Boom
    • Bitcoin Era
    • Bitcoin Treasure
    • Bitcoin Lucro
    • Bitcoin System
    • Oil Profit
    • The News Spy
    • British Bitcoin Profit
    • Bitcoin Trader
  • Bitcoin Reddit

© Copyright 2021 EconIntersect - Economic news, analysis and opinion.

en English
ar Arabicbg Bulgarianda Danishnl Dutchen Englishfi Finnishfr Frenchde Germanel Greekit Italianja Japaneselv Latvianno Norwegianpl Polishpt Portuguesero Romanianes Spanishsv Swedish