Weekly Perspectives: Returns From the Bottom of Bear Markets

Weekly Market Outlook For April 6-10 – The Calm Before The Storm
April 4, 2020
Weekly Market Outlook For April 13-17 – Bad News Is Good News, Until It Isn’t
April 11, 2020
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Here is your weekly newsletter — perspectives on trading and financial markets.
Click here for last week’s edition.
 

The Calm Before The Storm –

The first week of Q2 is now in the books and overall it was a fairly muted trading week. 
 
This past week we saw continued deterioration in the US job markets with an unprecedented ~10 million Americans now reporting unemployment in the past 3 weeks alone.
 
The major indices responded by trading for the majority of the week inside the previous week’s range with the buyers unable to make any more gains based on last week’s historic run-up (dead cat bounce).
 
The fact that last weeks’ rally didn’t fall apart may seem like a win for the buyers however this past week’s trading action felt more like the calm before the storm and now we have arrived an inflection point where a retest of the recent lows is a high probability scenario. 
 
 
 
Watch this week’s Weekly Outlook video to see the setups and levels we’ll be watching as well as the technical outlook for the VXX SPY QQQ IWM DIA EEM TSX TLT GLD MGC BTCUSD EEM and more for the week of Weekly Market Outlook For – April 6 – 10, 2020.
 

 

Returns From the Bottom of Bear Markets

 
 
 
 
Since the 1929 crash, there have been 5 bear markets that saw declines of 40% or more.
 
The average of these declines was roughly 50% and it took, on average, 58 months (nearly five years) for stocks to hit a fresh high.
 
If this bear market repeats that average 50% plunge, the S&P 500 would fall to ~840 points from here. That’s a 33% fall from today’s level.
 
While the chart above shows the possible returns found at the bottom of bear markets, if you buy back in too early, you go underwater and you will need an even bigger gain just to break even.
 
If you’re not an active investor don’t be overly tempted to try to nail the bottom – leg your way into your full allocation vs. putting on the full trade at once.  
 
For more active traders, stay with the trend but be careful not to overstay your welcome.   Countless dollars have been lost by traders trying to catch the last few cents of the move and then missing out on the massive ensuing rallies.  
 
 

The Changing World Order

 
Mid-last year Ray Dalio wrote about the significant cyclical changes that we were likely to see with the new decade.
 
Dalio noticed that each decade formed its own cycle, and the themes and investment ideas that were so effective late in a market cycle rarely work in a new cycle.  
 
2020 started off with a bang and for a couple of months carried off from where 2019 left off but the last couple of months have shattered that narrative. 
 
Last week Dalio shared some more observations that I think well worth the read and add to your reading list.  
 
My biggest mistakes in my career came from missing big market moves that hadn’t happened in my lifetime but had happened many times before.
These mistakes taught me that I needed to understand how economies and markets have worked throughout history and in faraway placesso that I could learn the timeless and universal mechanics underlying them and develop timeless and universal principles for dealing with them well. 
 
Full article here on LinkedIn.  
 

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Weekly Perspectives: Returns From the Bottom of Bear Markets

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