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Joe Granville defines bear markets in three phases and bull markets in three
phases in his book "The Stock Market Teacher". From his defininition here,
it looks like the DOW is in or very close to being in the first stage of the
bear. Attached is a chart that attempts to illustrate this.
BEAR PHASE ONE
Advance/Decline Line -- Breaks uner the low recorded just prior to the final
bull market rally in the blue chips and is in a clearly defined downtrend.
Highs and Lows -- The daily number of new lows climbs rapidly and surpasses
the dwindling number of new highs. Consistently thereafter new lows
outnumber new highs.
Dow Jones Industrials -- First sharp declines in the industrial average from
the major peak recorded. Strong attempt to rally back about 60 days later
fails, the Dow then breaking the first important low point to record a very
bearish-looking downward zigzag.
Dow Jones Transports -- Commensurate sharp decline from major peak with
inability to recover on later rally attempt.
Time Indicator -- Twenty two to 34 months have gone by since the last major
bear market bottom. a market top having all the earmarks of a major bull
market peak must have been seen within the past one to five months.
Dow Jones Industrial 200-day Trendline -- Previously rising 200-day line has
flattened out and is just starting to turn down. The Dow Jones Industrial
Average has come down sharply and made a downside penetration of the
trendline. Later the average might get back a bit over the line but
promptly turns down again. This all usually happens during the first bear
phase.
News -- The new definitely remains bulish, very favorable to business. Most
economic indicators support the continuation of prosperous times. While the
market responded to favorable news during the second phase of the bull
market with rallies, shrugged off the good news and went sideways during the
third phase of the bull market, the market now goes into sharp declines in
the face of continuing good news.
Sentiment as Measured by Money Market Assets -- As the stock market moves
lower in the first phase of the bear market money market assets now begin to
climb rapidly reflecting growing public fear of th market.
General Motors -- General Motors is now in a very bearish falling field
trend. The price of the stock has made a downside penetration of its own
long term trendline, and the line itself has flattened out and is just
starting to turn down.
The 50 principle -- The earlier this Principle is activated the more valid
it is likely to be. If more than 50% of the previous completed bull market
is retraced during the first bear phase, the record storngly points toward
the previous bear market low being broken in this bear market....
Most of the above conditions have been met. General Motors indicator
hasn't. The 50% principle hasn't. Net cumulative volume and the DOIW have
fallen below last October's low and both are now trending below their 200
day MA. New lows have been swamping new highs since last July. The percent
off of the all time high is nearing the correction level of 1998. Likewise
for the percent belwow the 200 day MA.
BobR
----- Original Message -----
From: "Earl Adamy" <eadamy@xxxxxxxxxx>
To: <realtraders@xxxxxxxxxxxxxxx>
Sent: Sunday, February 27, 2000 5:47 AM
Subject: [RT] Bear Market Definition 1 of 2
> There has been some debate here recently on the issue of whether we are
> in a bear market. Generally, when applying percentages, a 10% decline
> has been viewed as a correction and a 20% decline has been viewed as a
> bear market. However, I thought it might be instructive to refer to the
> venerable Edwards and McGee for some guidance on the subject without
> digging into Dow Theory and other abstractions. When it comes to bull
> and bear markets, E&M refers exclusively to the Primary Trend of the
> market.
>
> "The "market", meaning the price of stocks in general, swings in trends,
> of which the most important are its Major or Primary Trends. These are
> the extensive up or down movements which usually last for a year or more
> and result in general appreciation or depreciation in value of more than
> 20%." The only problem with applying the 20% requirement in evaluating
> major swings is that we haven't had a 20% correction in the major
> indexes since 1987.
>
> However E&M goes on to deal with the importance of swings in defining
> bull and bear markets:
>
> "As long as each successive rally (price advance) reaches a higher level
> than the one before it, and each secondary reaction stops (i.e., the
> price trend reverses from down to up) at a higher level than the
> previous reaction, the Primary Trend is Up. This is called a Bull
> Market. Conversely, when each intermediate decline carries prices to a
> successively lower levels and each intervening rally fails to bring them
> back up to the top level of the preceding rally, the Primary Trend is
> Down, and that is called a Bear Market. (The terms bull and bear are
> frequently used loosely with references, respectively, to any sort of up
> or down movements, but we shall use them in this book only in connection
> with the Major or Primary movements of the market in the Dow sense.)"
>
> We run into a major problem in combining the 20% advance/decline with
> higher/lower pivots. The only 20% swing since the 1987 lows has been up!
> Because of the unusual situation where no 20% correction has occurred in
> such a long period of time and it is beyond the test of reason to
> require taking out the 1987 lows to define a bear market, it seems more
> reasonable to apply the swing test to the primary trend.
>
> The attached weekly closing GIF of the DJIA, with labeled "P"rimary and
> "I"ntermediate pivots, shows that the most recent major pivot high (not
> yet labeled with a "P" because not enough bars have elapsed) was a
> higher high so this does not qualify even though the most recent pivot
> low (which may qualify at best as "I"ntermediate) has been taken out.
>
> The attached weekly closing GIF of the NYSE (2 of 2) is on the cusp of
> showing a true bear market according to the E&M definition. Note that
> the most recent (unlabeled) primary pivot was lower than the previous
> "P"rimary pivot and last week's close was only 0.25 above the previous
> "P"rimary pivot low. Thus any weekly move to new closing lows would
> effectively meet the test of low Primary high and lower Primary low.
> Should the NYSE composite close below 576.17, I would consider it to be
> in a bear market.
>
> Earl
>
>
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