We never actually know that we've been in a bull market until well after the bottom.
It's easy to look back and pinpoint the March 2020 low or the March 2009 low, for example, and say, "That's when the bear market ended and a new bull market started".
But in real time, when we're going through that transition, how can we possibly know?
Well, classic signs of the end of the bear markets are things like historically bearish sentiment extremes and washout breadth levels.
We obviously had both of those as our sentiment readings this summer were the most pessimistic since the Great Financial Crisis, and only 14% of stocks on the NYSE were in uptrends (compared to almost 90% entering 2021).
Those are the things you see just before the market turns.
Now, what are the things you see just after a market turn, around the 2nd inning or so?
Momentum thrusts.
Relentless buying pressure coming off historic selling. And that's precisely what we've been seeing over the past month.
If it walks like a duck and quacks like duck, then it's probably not a chicken.
That's how I look at what is potentially year 3 of a new bull market.
Look at all the most important cycle bottoms in stock market history.
You'll notice the powerful thrust in year 1, followed by a messy digestion of those gains in year 2. And then all those bull markets resumed in year 3:
Or did we just see the initial thrust off the lows before a more sustainable move progresses into the end of the year?
That's a good question to be asking.
And while we don't ever actually know until after the fact anyway, we've set these 2 levels as clear lines in the sand for arguably two of the most important assets on the planet: The S&P500 and Ethereum.
The bottom line is this: If the S&P500 is above 4200 and Ethereum is above 1800 - YOU CANNOT BE SHORT.
The real answer is because a lot of charting software packages the past few decades have set it as a default.
But you also hear guys like Paul Tudor Jones talk about how below a 200 day moving average, you get out. In other words, bad things happen below the 200 day.
For me, I have reasons for doing everything. And while I understand that there are more like 252 trading days in a year, not 200, I still believe that if a stock is below its 200 day simple moving average, it's probably not in an uptrend.
This is specifically for my personal definition of an intermediate-term timeframe. I like to look out weeks and months, not years, and certainly not hours or days.
200 days is a good number for me. And while it's not perfect (hint: nothing is) looking at the percentage of stocks above their 200 day has historically given us some great washout signals.
If there is one intermarket relationship that every stock market investor should be following, it's got to be the Discretionary vs Staples ratio.
Consumer Discretionary stocks represent those areas where "Consumers" spend their "Discretionary" income. These include Autos, Retailers and Homebuilders, among other things.
Consumer Staples are the stuff consumers are going to buy and use regardless of how bad the economy might get. These are things like Laundry Detergent, Toothpaste, Beer, Chips and Soda.
When Discretionary stocks are outperforming Staples, that historically happens when stocks in general are doing well and the S&P500 is moving towards the upper right of the chart.
When stocks in general are under pressure, Staples tend to outperform, holding up better than most other stocks, especially Consumer Discretionaries.
It's probably the most important correlation for US Stock Market investors to be aware of.
Here is that chart today making new 3-month highs:
When the worst stocks on the planet can't go down any more, that's usually good information.
We saw a lot of Small-cap Growth, Arkk Funds, Biotech, Chinese Internet and many of those other "Growthy" areas bottom out this Spring, and some of the last ones in June.
At the Mega-cap level, nothing caused more shareholder wealth destruction than Facebook, down 60% from its highs less than a year ago.