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Is It A Correction Or A Bear Market?

Tyler Durden's picture




 

Submitted by John Murphy,

What Difference Does It Make?

There's a debate in professional circles as to whether the stock market is in a correction or a bear market. It makes a difference. Let's define what they are. A stock market "correction" is a drop of more than 10%. Most corrections average about -15%. A bear market is a drop of 20% or more. Bear market losses have averaged -30%, and last longer than corrections. The last two bear markets between 2000 and 2002 and 2007 to 2009 lost -50%. Those losses were much bigger than most bear markets. Those precise definitions can lead to problems however. The price bars in Chart 1 show the S&P 500 losing -21% during 2011 from May to the start of October. That qualified as a bear market.

 Closing prices, however, lost -19% which signaled a correction. I recall a debate at the time as to whether or not that qualified as a bear market. As it turned out, 2011 was only a correction. Moving averages "death crosses" often signal a bear market, but not always. Chart 2 shows the (blue) 50-day average falling below the red 200-day average during 2010 and 2011 for the SPX. [50 and 200day EMAs also turned negative both years].

The SPX lost -17% in 2010 before turning back up. That was also a correction. Bear markets don't always last a long time either. Bear markets in 1987, 1990, and 1998 lasted only three months, and bottomed during October. 

A LONGER-RANGE LOOK AT THE S&P 500...

The monthly bars in Chart 3 show the last two bear markets in the S&P 500 starting in 2000 and 2007 which lost -50% and 57% respectively; and the SPX reaching a new record in spring 2013 which ended the "lost decade" of stocks that started in 2000. The horizontal line drawn over the 2000/2007 peaks should act a solid floor beneath the price bars. A drop to that flat line would represent a drop of 26% which would qualify as a bear market. But that would still leave the SPX in a secular uptrend.

The rising trendline drawn under the 2009/2011 lows shows potential support near 1700. A retest of that support line would represent an SPX lost of 20% which qualifies as a bear market. Chartwise, however, an SPX drop into bear market territory (-20% to 26%) would still be within its long-term uptrend. So it might not matter that much after all whether we're in a "correction" or "bear market" as long as the secular uptrend remains intact.

S&P 500 RUNS INTO SELLING...

Last week, I used Fibonacci retracement lines over the Dow Industrials to identify levels where more selling was likely. Chart 4 applies those (red) lines to the S&P 500 measured from its July high to its August low.

The SPX has already run into selling near 2000 which was a 50% bounce. It has lost ground since then, but remains above last week's climactic low. The SPX will probably "back and fill" for a month or two in an attempt to repair recent technical damage. That would take us into October which has marked the bottom of most previous corrections. In the meantime, a retest of the August low wouldn't be surprising. That would be an important test. As long as last October's low remains intact, I will continue to lead toward the "correction" camp. But there are enough negative warnings to justify a very cautious stance.

 

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Wed, 09/02/2015 - 17:26 | 6501666 FrankieGoesToHo...
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It has been in a bear market since 2000 adjusted for real dollars.

Wed, 09/02/2015 - 17:33 | 6501704 johngaltfla
johngaltfla's picture

Final phase of a 18 year cyclical bear market; which is the most violent. After the next low is made BOHICA as the central banksters will go ape shit crazy printing anything and buying everything.

Wed, 09/02/2015 - 18:08 | 6501843 swass
swass's picture

I'm not a fan of drawing trendlines using arithmetic scaling on long-term charts like that.  Using log scale, which is how the SPX long-term should be viewed, it has already broken down.

Wed, 09/02/2015 - 17:27 | 6501669 Hitlery_4_Dictator
Hitlery_4_Dictator's picture

Screw this asshole, everyone is hoping this is a correction I hope it's the mother of all bears, which means this will be a correction 

Wed, 09/02/2015 - 17:43 | 6501743 Mojeaux18
Mojeaux18's picture

lol

Wed, 09/02/2015 - 17:50 | 6501773 KnuckleDragger-X
KnuckleDragger-X's picture

The six month trend line is bearish, but we have so many people bending it in so many ways that we'll wind up wth the bottom falling out since anything corrective gets slammed in the other direction......

Wed, 09/02/2015 - 17:27 | 6501671 atoast2toast
atoast2toast's picture

moving average, macd, a trend line over 14 years, lazy analysis 

Wed, 09/02/2015 - 19:01 | 6502047 Biff Malibu
Biff Malibu's picture

and using Stockcharts for your "analysis"???  This is JV stuff...

Wed, 09/02/2015 - 21:49 | 6502641 ceilidh_trail
ceilidh_trail's picture

Do you even know who John Murphy is?

Thu, 09/03/2015 - 01:19 | 6503225 asteroids
asteroids's picture

There is one indicator for a bear market that has never ever failed. When the 50 crosses the 300 SMA and both start heading down, you have the start of a  bear market. That's the real death cross. You goto cash and wait for the reverse. We are almost there btw.

Wed, 09/02/2015 - 17:27 | 6501672 Chuck Knoblauch
Chuck Knoblauch's picture

Call me in May 2016.

Most of the blood should be gone.

Wed, 09/02/2015 - 17:28 | 6501677 Budnacho
Budnacho's picture

If by "correction" you mean "first fuckup in a long series to come" then yes....a correction. 

Wed, 09/02/2015 - 17:28 | 6501679 TheZeitgeist
TheZeitgeist's picture

With QE(n) on the way, I vote 'correction' - at least in US markets. One last big blow on the bubble, probably up to DJIA~20,000 by middle of next summer, then something makes it pop.

Wed, 09/02/2015 - 17:35 | 6501709 Urban Redneck
Urban Redneck's picture

Where the DJIA is next summer is unrelated to whether we are in a correction or bear market now.

Wed, 09/02/2015 - 17:56 | 6501798 TheZeitgeist
TheZeitgeist's picture

A correction is an event over short amount of time, a bear market is a condition over time. There can be no bear market 'now,' indeed Heisenberg Uncertainty creeps in here.

Wed, 09/02/2015 - 17:59 | 6501808 FrankieGoesToHo...
FrankieGoesToHollywood's picture

If the mark-to-market value is less than your purchase price you are in a bear market now.

Wed, 09/02/2015 - 18:19 | 6501897 TheZeitgeist
TheZeitgeist's picture

I would say one is underwater on what they own, but until a transaction is made there is no 'market' - bear, bull, corrective, or otherwise.

By such measure, a day trader clinging to his Tesla share (and doing nothing else) is in a bear or bull market every other week.

Wed, 09/02/2015 - 17:28 | 6501680 failure to perform
failure to perform's picture

Let Rome burn. Sick of waiting for the shit show.

Wed, 09/02/2015 - 17:42 | 6501692 Dr. Engali
Dr. Engali's picture

If the "markets" are manipulated on the way up, what's to say they aren't manipulated down? With free unlimited fiat the fed's robots can take the markets anywhere their programers decide to take them.

Wed, 09/02/2015 - 17:33 | 6501703 Consuelo
Consuelo's picture

 

I find it rather amusing that in all the talk of technicals and 'secular uptrends', the author is scant on fleshing out the (QE) underpinnings of such secular 'strength'...   As if nothing of any historical importance (on a $$$stratospheric scale), ever happened to light this fucker off in 2008...

Wed, 09/02/2015 - 18:56 | 6502031 MASTER OF UNIVERSE
MASTER OF UNIVERSE's picture

exactly, I agree, Consuelo.

Wed, 09/02/2015 - 17:40 | 6501713 BurningBetty
BurningBetty's picture

Are these things even relevant any more? I trade TA, but when you have the Fed buying up the market at every major fall, then the TA and resistance levels are bullcrap. Look at the movements in the markets lately. Like the last weeks trading. In what normal market do gaps like that occur? Anyone? And where on earth does a market plunge 10% and regains most of the losses within that trading day? What techincal analysis are we talking about? They even manage to move FX markets! Remember when the SNB supported the Euro after it started freefalling? These markets are dead. Only those with hefty balls and some insane appetite for risk trade here. You have no clue what the Fed is going to do, or any of their associated institutions. 

If we had free markets, the indexes would open -50% down in one trading session, on the open and purge all malinvestments and all bad debt in a single poof. When that happens, we'll talk free markets. 

Wed, 09/02/2015 - 17:59 | 6501809 Crocodile
Crocodile's picture

In 2014 there were only FOUR tading days (pretty sure) where the DJIA gained or lost a full 1% in a day; how many times has that happened this year; I lost count.

Wed, 09/02/2015 - 17:36 | 6501715 adr
adr's picture

It's a bullshit market.

No other analysis is necessary.

Wed, 09/02/2015 - 17:38 | 6501717 SSRI Junkie
SSRI Junkie's picture

my guess is they will bouy these pigs up until obola leaves office. qe kicks in if it becomes more than a correction

Wed, 09/02/2015 - 17:41 | 6501735 daggerhashimoto
daggerhashimoto's picture

Im comfy

Wed, 09/02/2015 - 17:44 | 6501745 RichM
RichM's picture

The article's next-to-last sentence is, "As long as last October's low remains intact, I will continue to lean toward the 'correction' camp."

IOW, if it doesn't go much lower, it's only a correction. In English, we call that a "tautology."

Wed, 09/02/2015 - 17:44 | 6501748 PoasterToaster
PoasterToaster's picture

Buuuuuurn.

Wed, 09/02/2015 - 17:46 | 6501758 kchrisc
kchrisc's picture

"Is It A Correction Or A Bear Market?"

It's a scheme.

Zion is a scheme, not an ethnicity..

Wed, 09/02/2015 - 18:19 | 6501896 newnormaleconomics
newnormaleconomics's picture

Truly, one of the greatest rentier-parasitic, extractive schemes/scams in world history perpetrated on 99.999% of the human ape population by the the 0.0001%. 

Eugenie, Eugenie!!!

Wed, 09/02/2015 - 17:47 | 6501762 No More Bubbles
No More Bubbles's picture

Neither - it's a BURSTING FUCKING BUBBLE!!!!

Wed, 09/02/2015 - 17:54 | 6501791 chomu
chomu's picture

Bulls - QE4! Trump '16 bitches!

Bears - dumb buybacks, no multiple expansion, meager earnings growth (outside of said buybacks), commodity deflation, Obummer is a commie, yada yada..

Wed, 09/02/2015 - 17:57 | 6501795 besnook
besnook's picture

it is a math model that needs to find the balance since this is common core math model and only the closest right answer is significant. the one thing way out balance now is the dollar. it will correct as the spx contracts until the right level is reached, hopefully in time for the end of the quarter so a big improvement in dollar denominated revenue and profit can be shown in time to save the market and cause a rate increase.

Wed, 09/02/2015 - 17:56 | 6501797 Tyrone Shoelaces
Tyrone Shoelaces's picture

Deflationary collapse, all the money is gravitating to the stock casino.  Which makes us ask things like this:

 

http://www.zerohedge.com/news/2015-09-02/stock-market-now-too-big-fail

Wed, 09/02/2015 - 18:09 | 6501849 newnormaleconomics
newnormaleconomics's picture

"Death crosses" during bull markets coincide with bottoms for corrections. 

During bear markets, the 50 and 200 DMAs become bear market resistance. 

How do we know? 

https://app.box.com/s/atlq7gj383socxkysr2ij5b3c15z65z5

https://app.box.com/s/sqpdwrin8dt40t3ri6n0n5ksx88gtoqz

https://app.box.com/s/plakr8l4jwug03yf5hr5jwkntqs24ech

It's the onset of a bear market as in Oct-Nov 2000 and Jan 2008; that is, until it isn't and the TBTE banks' offshore shadow banks' pass-through entities with HFT jam SPX equity index futures relentlessly while levered 50-80:1 bank capital at ZIRP to foil the bearish pattern for as long as they deem necessary (or until they decide to pull the plug on the effort and allow a crash). 

Fed rate hikes? Please. QEternity and perpetual Japan-like ZIRP is the more likely outcome.

Disclaimer to the clueless: Note to ZHers, this is NOT investing/speculating/trading advice. The HFTing bots and TBTE bank offshore shadow banking market "managers" know all of this AND MUCH MORE, and they are not going to allow ZHers to make coin shorting their racket. So, stating the bloody obviouos, be well advised. 

 

 

Wed, 09/02/2015 - 18:18 | 6501883 Hilroy
Hilroy's picture

Everyone is blaming this crisis on the Chinese market though. Would it be better to look at their historical charts ? Have domestic crises ever seen influence like this from foreign economies?

Wed, 09/02/2015 - 18:25 | 6501917 OC Sure
OC Sure's picture

 

 

More John Murphy, please. 

Mr. Murphy knows the principles never change, only the measurements do. 

Wed, 09/02/2015 - 18:28 | 6501937 stingboo
stingboo's picture

"And may I draw your attention to chart #3....this is what we technical experts refer to as The Puking Dragon..."

Wed, 09/02/2015 - 20:18 | 6502258 sevensixtwo
sevensixtwo's picture

A stock market "correction" is a drop of more than 10%. Most corrections average about -15%. A bear market is a drop of 20% or more.

 

So the average of things between -10 and -20 is -15?

Wed, 09/02/2015 - 20:38 | 6502315 Shanky01
Shanky01's picture

Never were in a bull market. Can't call manipulated and corrupt a bull market. More like a bs market

Wed, 09/02/2015 - 21:40 | 6502601 Stevious
Stevious's picture

Was a bear market, like it or not, it's a bull market at the moment.

Change is inevetable but when?

Wed, 09/02/2015 - 22:27 | 6502819 JoWazzoo
JoWazzoo's picture

Last night Cramer was pumping some piece of shit stock and he said if you put a 20 multiple on 2017 earnings it looks like a good buy now.  WTF?

 

Speaking of that fuckhead.  Are there any calls for jail time for his statements on CNBS about personal emails re Apple from its CEO at Dow down 1,000 on Black Monday?  You or I would be rotting in jail forever.

Thu, 09/03/2015 - 02:42 | 6503311 TheCentralScrut...
TheCentralScrutinizer's picture

I have a Quarterly Chart of the SPX that I look at every so often..   It's telling me that this "correction" is the start of something even bigger.. 

The previous two crashes occurred when two black candlesticks occurred on the Quarterly Chart.   They did not reverse until the lower Bollinger Band arm was reached..     

IF this is another repetition of the previous two Bear markets, that would mean that the SPX has to hit somewhere around 1,000 to 1,200 before a reversal will occur.

If I can see this, I wonder if Mr. Murphy can see it too?

http://bigcharts.marketwatch.com/advchart/frames/frames.asp?nosettings=1...

 

 

Thu, 09/03/2015 - 12:13 | 6504682 803Mastiff
803Mastiff's picture

"Tech Support its a nightmare!!!!"........

 

https://www.youtube.com/watch?v=Rd2PBCgjB8c

 


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