Its not surprising that few know how to trade a bear market. They are the toughest markets, and tend to break all those nice models and short term indicators that worked so well in the smooth waters of a gradually rising bull market. Its probably psychological, but we are stunned at how few who actually traded it remember what the 2000-2002 bear market was like. In short, even with a roadmap, it can be a tough trail to navigate.
Here is our comparison of the current bear market and recession with the bear market and recession of 2000-2002. We use the SP500 as a relatively broad market index, as the performance varies among them. In 2000-2 the NDX was the leader to the downside as the trigger for the downdraft was the bursting of the tech bubble. This time around its the housing related stocks and the financials leading the way, but with remarkably broader participation. and demonstrated by the Russell 2000.
What these charts don't show is the extreme volatility behind these simple lines, and the intra-week swings high and low. Bear markets are notoriously hard to trade from positions, unless they are unleveraged and rock solid, and strictly in the intermediate direction of the market.
We'll know quite a bit more in the next two weeks. We'll update this comparison then.
"Senators disturb us by reminding us of the possibility of large numbers swarming from China; but the answer to all this is obvious and very simple. If the Chinese come here, they will come for citizenship or merely for labor. If they come for citizenship, then in this desire do they give a pledge of loyalty to our institutions; and where is the peril in such vows? They are peaceful and industrious; how can their citizenship be the occasion of solicitude?"
Senator Charles Sumner, 1870