11 signs that warn a bear market is coming

Thursday, September 17, 2015
By Paul Martin

MICHAEL SINCERE
MarketWatch.com
Sept 16, 2015

By the time most investors realize a bear market has taken hold of stocks, much of the damage has been done.

Often, stealth bear markets begin while a bull market is still on its last legs. Mark D. Cook, coauthor of our book, “Prepare Now and Survive the Coming Bear Market,” included 11 stages that tell you the bear is approaching. Yet every bear market is different, so consider these as guidelines, not absolute rules:

1. Failed rallies

The first stage of a bear market includes rallies that cannot hold. A chart of the S&P 500 SPX, -0.05% will show a series of lower lows. This tells astute traders that the market is vulnerable and weak, and is susceptible to further injury.

2. Lifeless, low-volume rallies

The next stage is lifeless rallies in a low-volume environment. This is a clue that major institutions are not willing to buy. Keep in mind that most institutions buy or sell in herds, and if their peers aren’t buying, institutions are unlikely to make major purchases. One of the ways that Cook identifies true rallies is by looking at the NYSE Tick, but other indicators also show that the breadth of the market is weak even while the market is going higher. This divergence is a huge red flag.

3. No bounce-back

After a greater than 3% correction, the market should be able to bounce back (retrace) at least half of its lost points. If it can’t, that’s another warning sign. As the weak rallies keep failing, the S&P gives up more and more ground.

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