Bull Market and Bear Market strategies

Core Concept

The stock market cycles between Bull (rising prices) and Bear (falling prices) markets. An intelligent, educated investor understands these conditions and acts strategically, basing decisions on knowledge of their specific stocks rather than on emotion or market sentiment alone.

Key Differences: Investor vs. Trader

• An investor is attached to the company, understands its business, and can distinguish between a general market decline and a company-specific problem.

• This knowledge puts them in an advantageous position to make informed decisions during market volatility.

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Bear Market (Down Market) Strategies

When the market is falling, you have three main options:

1. Sell Immediately: To minimize potential losses.

2. Hold and Do Nothing: Let the market correct itself without taking action.

3. Buy More (Opportunity): If your analysis confirms the company is still sound, you can buy more shares at a lower price to benefit from the decline.

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Bull Market (Up Market) Strategies

When the market is rising, you have three main options to protect against an inevitable correction:

1. Sell a Portion: Sell some shares at the inflated price to lock in profits.

2. Hold and Do Nothing: Remain invested without taking action.

3. Sell for a Profit: Take full advantage of the high prices and exit your position.

A Key Bull Market Tactic:
Sell a portion of your stocks at the high bull market price. After the subsequent market correction drives prices down, use the proceeds to buy back more shares than you originally sold. This reduces your average cost per share and increases your number of holdings.

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Final Piece of Advice

Base your decisions on knowledge, not feelings. Being thoroughly educated about the companies you invest in and their industries makes market conditions less important, as you can confidently discern real problems from temporary market noise.

Bear-Market Rally or New Bull?

How do investors tell the difference between a bear-market rally and the birth of a new bull market? .

Investment professionals look for certain technical signals to be in place before confirming a reversal is underway. What’s key is the number of stocks participating in a move, which is why these sorts of indicators are referred to in the parlance of market technicians as “breadth thrust” signals. The duration of the move and the price gains associated with it are also important. 

The indicators that most reliably confirm that there is a shift into a new bull market are:

• On the New York Stock Exchange, the NYSE American, and Nasdaq, 90% of the common stocks trade above their 10-day moving averages.
• Stocks advancing on the NYSE outpace those declining by nearly a 2-to-1 margin for at least 10 days.
• More than 55% of the stocks on the NYSE set new highs over a 20-day period.

These events only happen at bullish turns, says NDR’s Clissold. He highlights the end of the pandemic-induced bear market in March 2020, the shortest in history. That lasted 33 or 40 days, depending on whether you’re looking at the S&P 500 or the Dow Jones Industrial Average, where there were a series of powerful rallies that occurred through March and early April signaling a new upward move.

Faced with the worst first half for stocks and bonds in 50 years, the highest inflation in 40 years, and an endless barrage of bad economic data, investors might be excused for searching for bargains amid the rubble and assuming most of the damage is done.

Wall Street pros are at odds as to whether we are at an inflection point in the markets. Some see indications that we have likely hit the lows for stocks, while others warn of more pain ahead.

Representing the more bullish camp is James Paulsen, chief investment strategist at Leuthold Group in Minneapolis. He notes that the bottom may have already been made as the Fed is nearing the end of its tightening cycle, growth is slowing, and inflation is beginning to roll over. Moreover, he believes most of “the sellers are long gone.”

“Are there any nervous Nellies left?” he asks.  

Taking the opposite view is David Kotok, co-founder and chief investment officer of Cumberland Advisors, a registered investment advisory firm in Sarasota, Florida, with $3.5 billion under management.

“We haven’t reached extreme levels of fear yet,” Kotok says. “We haven’t made a bottom because we haven’t seen extreme selling.” He expects interest rates will continue to go higher as inflation proves harder to subdue, geopolitical tensions worsen, and “shocks” emerge. He’s also concerned about “contagion risk” emanating from slowdowns in global economies

https://www.morningstar.com/articles/1105388/how-do-you-tell-a-bear-market-rally-in-stocks-from-a-new-bull-run

But a bear market isn't all bad news.

Sure, it can hurt when your portfolio takes a hit when stock prices fall. But you'd still better be prepared for the inevitable downturns in the stock market, and remember that the situation is only temporary, after all. In every instance when the overall market dropped, it returned and then grew to greater heights. In fact, the stock market has a 100 percent success rate when it comes to recovering from a bear market! The only thing to remember is that sometimes it takes longer for the bounce-back to occur.

If you follow a long-term approach to investing, then you know that patience is a virtue whenever you're investing in the stock market. It also helps to keep your vision focused on your long-term horizon whenever the market hits some turbulence. By using dollar cost averaging and by investing regularly, you can even make the bear market work for you by taking advantage of generally lower prices with additional purchases. Knowing the market's infallible past record, you can sleep easy -- even when other investors are panicking.

Just 4.5pc of finance professional opted for a V-shape recovery from current slump

Recession: 95pc of finance professionals expect downturn to continue
Just one in 20 money professionals believes that the economy will stage a sharp “V-shaped” recovery from the current slump, according to a survey by Barclays Capital.

By Richard Evans
Published: 9:09PM BST 02 Jun 2009


Photo: PA When the investment bank asked experts what they expected the trajectory of the global economy to be this year and next, 37.5pc predicted a W-shape – temporary recovery, before renewed weakness – and 31.5pc a U-shape, representing weak growth for some time before gradual recovery. Another 26.5pc favoured the L-shape: growth remaining weak for a protracted period.

Just 4.5pc opted for a V-shape – weakness and then sharp recovery – according to the survey of 605 professionals, who worked for a broad range of foreign exchange investors including hedge funds, real money managers, proprietary trading desks and corporates.

The pessimism about the economy was reflected in experts' opinions about the recent rally in "risky assets" such as shares.

Thirty-seven per cent said they thought we were in a bear market rally close to ending, while 23.5pc said it was a bear market rally with further to go, a bearish total of over 60pc; 22pc thought it sustainable but that further gains were unlikely, and 17.5pc said risky assets had further to rally.

“The recent strong performance of risky assets is seen by investors as a ‘bear market rally’ that is close to ending,” the bank said. “This is consistent with the general view that any global economic recovery over the next year will be shallow or temporary – U or W-shaped.”

Barclays also asked the finance professionals to select the currencies most likely to rise and fall. As favourite to rise, the pound was narrowly beaten by the Australian dollar, while the American dollar was seen as most likely to weaken.

"The choice of the most attractive long currency trading position was a close-run contest between sterling and the American dollar, with the latter eventually winning," Barclays said. "The US dollar was seen as the most attractive short currency position."

http://www.telegraph.co.uk/finance/personalfinance/investing/5431622/Recession-95pc-of-finance-professionals-expect-downturn-to-continue.html