Bear Market Rally vs. Bull Market Breakout

Here we have the last three bear markets. These are weekly charts with....
10 week EMA - Blue
30 week SMA - Red
40 week EMA - Green

Easy point here is that any bounce off the low here can not be assumed to be the end of the bear market. We are below the declining 30 and 40 week MA's which is to many the definition of a bear market. Investools coach Jonathan Thatcher puts it in the easiest words....

10 week above the 40 week.... bullish
10 week below the 40 week.... bearish

I am a fan of Stan Weinstein's stage analysis and use of the 30 week MA.

1998 Bear Market was wickedly quick and made a big double bottom on the daily. The strength of the 1990's bull market did not even allow the bear market to trend below the MA's. Notice as the double bottom was confirmed, the 10 week was above the 40 week and they were both rising.... bear market over. Of course the bear market had "bottomed" weeks earlier with a gigantic hammer at daily support. But until that confirmation it could not be seen as anything but a bear market rally.

2000-2003 Bear Market was long and tough. Trended nicely below the MA's for years. The current 2008 position of price and the MA's clearly looks similar to this action as we are trending below the declining MA's. Notice in the 2000-03 Bear the counter trend, bear market rallies were common up to the 30/40 week MA's. This is the type of action that I would anticipate as "best case" for us now. Just a bear market rally.

As tempting as it may be if we do progress into a nice rally to call the bear market over, these charts should be enough to show the futility of the task. There is no way to know so there is no reason to waste brain space thinking about it. Until the "10 week is above the 40 week" it is just a bear market rally. Even then, as with my 5 minute trading, I'd want to see a higher low and higher high above the MA's lest it just get above and roll back down into another bear leg.

Given the current position, I would assume that the eventual breakout into a new bull market will look more like the 2003 breakout than the 1998 continuation of the mega rally of the 1990's. We will see what happens but the birth of a new bull market is just that.... its birth. Even though it is off the low, things are just then getting started. We should also see entire sectors make this weekly turn into a bull market BEFORE the market does. This is not yet present and we are in fact still seeing long term break downs.

So if we do rally the name of the game is Bear Market Rally which keeps the posture situated with the long term trend; There is no shock when the bear market reasserts itself. When a new bull market is born, this too can be recognized so when the "we've come too far too fast" crowd comes out, they can be laughed at as the charts will show us back in bull market bliss. These jokers were out in force in 2003. I was not trading in 1998 but from the looks of that chart I'd have to assume they were going wild! lol.

Letting the weekly chart do the thinking for me has served me well.

Jim