Bear Market Breakout?
At DecisionPoint.com we have been operating on the assumption that we are in a bear market. We won't know for sure until the market declines 20% or more, but that seems a bit late to begin responding to what appears to be bear market action.
The market recently went through two months of some nice bottoming action, then it made a strong break above the declining tops line. Can we now breathe more easily regarding bear market prospects? No one knows how this will resolve, but over the years I have learned to be wary of breakouts. Let me show you why.
In early-2008 the market appeared to make a solid bottom, and a breakout took place soon after. But it was a fake-out, which was followed by the lion's share of the nearly -58% bear market decline.
There were at least four "fake-out breakouts" during the 2000-2002 Bear Market decline. They offered great promise, but ultimately failed to prevent the -50% decline.
Conclusion: Breakouts are often signals that a down trend has ended, and sometimes not. We are proceeding on the assumption that the bear market has not ended.
Technical Analysis is a windsock, not a crystal ball. --Carl Swenlin
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