Yes, it’s a Bear Market

Many folks ask, when are we in a bear market? What indexes are in a bear market at this time? The commonly referenced measure as to whether we are in a bear market or not, is a 20% decline from the high.

I use closing figures for the calculation. And as for the 20% rule, I guess its better than nothing. In reality a bear market will start to reveal itself by lower highs and lower lows and a general deterioration in overall market sentiment.

So once a 20% decline is achieved then is the bear market considered to start from that point forward? No, the bear market actually began at the high and has been underway since then, but confirmed by the 20% decline.

There are 5 major indexes that I review on a regular basis. They are: Dow Jones Industrial Average (INDU) with 30 stocks, S&P 500 Index (SPX), Nasdaq Composite Index (COMPX) with 3000+ stocks, Russell 2000 Index and the NYSE Composite Index with 1900+ stocks.  You will see an interesting correlation between the number of stocks in an index and the bear market.

So who entered the realm of the bear first? In the video below, I review each of those indexes and show who is considered to be in a bear market at this point in time.

So the DJIA and SPX have not hit bear market status yet. They got close but didn’t hit the 20% mark. I believe the broader indexes are leading and that the DJIA and SPX will catch up.

Once you know that we are in a bear market, adjust accordingly if you haven’t already. And remember bear market rallies can be swift and strong. But the rallies usually don’t last.

And once you’ve entered the bear’s realm, some pretty heavy duty selling can still lay ahead. In the 2007 – 2009 decline, the SPX wasn’t considered to be an official bear until July 9, 2008.  And that bear didn’t end until March 9, 2009, with a whole lot of angst in between.  And it can last a whole lot longer as the 1929 to 1932 bear market can attest.

Crash to Come…

LINK

It has always been clear that a decade of negative real interest rates would cause excess investment in some area or other, which would eventually bring the overinflated stock market crashing down.

Misguided share buybacks are hollowing out companies’ balance sheets and …

The crash to come will focus therefore on the major names of corporate America, which have hollowed out their balance sheets to goose the prices of their management’s stock options.

MarketWatch.com

Position Sizing is Key in Options Trading

There are many aspects to trading that are important. Being able to look at a chart and read the story the chart is telling is important. Having a system or process that you use to determine setups for a trade is important. But probably most important of all is risk management. That is why I named this website, Beyond the Chart. There is more to trading than bars on the chart.

How much of my capital to risk on any one given trade. How to manage that risk with the use of stops? Where do I take my profit? I believe position sizing is one of the most important components of trading. It is especially important if you trade options or futures.  Now when I talk about options trading I’m talking about directional trading using outright buys of puts and calls or buying directional spreads.

Quite a while back I read a very interesting book called “Way of the Turtle” by Curtis Faith. Curtis was one of the original Turtles (traders) mentored by Richard Dennis and William Eckhardt. In the book Curtis tells the story of the Turtles and talks a lot about risk management.  I found the section on position sizing very interesting and felt that it could be adapted to options trading. Here is what I learned. Continue reading

89 Year Echo in the Stock Market?

No one knows for sure what the stock market is going to do. But I am always looking for patterns that might give clues. So when you think about historic price action in October, a stock market crash is definitely one that comes to mind.

The last time we were at an Elliott Wave SuperCycle wave high was 1929. The 1929 Crash occurred from September 3rd to November 13. That was exactly a Fibonacci 89 years ago. So I decided to compare the price action in 1929 to the current price action in the S&P 500 (SPX).

In 2018 the S&P 500 peaked on September 2 (closing basis).  Are we in an 89 year echo in the stock market? Watch this short video.

Hindenburg Omen…What is it and what could it mean?

Over the last year or so I’ve come across articles about the Hindenburg Omen.  I thought about writing a post about it but it seems that some others have done a pretty good job of that already.

Within the last year this came on my radar from a post that Jesse Felder did in November 2017 called “The Flames Went Higher“.  He recently followed that up with two posts.  One in August called “The Nasdaq Triggers Another Breadth Warning“. And then one on September 18 called “A Historic Divergence in Stock Market Breadth“. These last two are updates on the 2017 article. All of these talk abut the clusters of Hindenburg Omens and his charts show when they occurred.

Now just yesterday Tom McClellan of the McClellan Financial Publications created a post called “Ten Hindenburgs So Far“. This is a very good article because it gives you the backstory on the Hindenburg Omen and talks about what is happening now.

As Tom points out, we had ten Hindenburg Omen signals appearing in the month of September.  Now he also points out: “Not every signal leads to huge calamity of stock prices. But these signals tend to show up before big bear markets. So a Hindenburg Omen is a warning of trouble, but not a guarantee of it.”

And clusters of signals appearing in a short time span seem to be more important than individual signals, as if the market is pounding the table and saying “Listen to me!! – Tom McClellan

So I feel this is rather timely given my view of where we are in Elliott Wave cycles.  Check out these posts…the clock is ticking.