When Will We Call It A Bear?

Over the past few stunning weeks of market volatility, many people have called my radio show, e-mailed me and even stopped me on the street to ask me what direction I think this market is headed. People are rightly concerned that we may be marching headlong into a true bear market.

Now I have been about as vocal as anyone can be in my cautious approach to equities over the past several months, but still I must say that so far, what we are seeing is not, that’s right, not a bear market.

Do I think we are in for more tumult, and possibly a lot more selling before this market washes out the weakest of holders? I do indeed. But that doesn’t mean I think we now are in a bear market, or that we are even headed toward that dreaded bear moniker.

What I do think is that there is a solid chance we could see enough selling that would put us technically into a bear market. Now remember, a bear market is technically defined as a period of generally declining stock prices accompanied by a market drop of about 20%. Despite the big selling in equities, we are nowhere near a 20% pullback from the recent highs.

As you can see by the chart of the S&P 500 over the past two years, the index has just recently fallen back to its long-term, 200-day moving average. A correction indeed, but nowhere near the level it would need to fall to call this a true bear market. As you can see by the chart of the S&P 500 over the past two years, the index has just recently fallen back to its long-term, 200-day moving average. A correction indeed, but nowhere near the level it would need to fall to call this a true bear market.

And where do I think we could call this a true bear? Well, if the S&P 500 were to fall below the key support level of 1375, we could indeed start to tag this market with the bear label. More importantly, if we do see a breakdown in the S&P 500 below 1375, it might be the start of some very serious market damage that you don’t want your serious money anywhere near.

If you want me to handicap the chances of stocks going down this far, I would have to say that there is about a 20% chance of this kind of steep market decline occurring. The good news is that this means I think there is an 80% chance that the market is just experiencing a healthy correction from the vaunted levels it hit last month.

But whatever I think the odds may be, remember that I am not in the business of handicapping stocks. I am in the business of watching what the market tells us and acting accordingly.

This objective approach to stocks is what the Fabian Plan has been about for more than 30 years. Right now, subscribers to my Successful Investing advisory service are safe and sound, and watching this market sell off from the security of cash.

If you want to find out how you can feel calm amidst the current market turmoil, too, click here.