10 Reasons Why Bear Markets Get The Best Of Bulls

Having a bullish mindset in a bear market is not profitable.

And if bear markets have limited (or far off) long-term support, they can make lower lows for a long time. Buying stock market pullbacks is not profitable in bear markets because pullbacks turn into downtrends, and what was thought to be support then becomes another layer of resistance.

Although the current market environment hasn’t reached bear market status yet, the recent selling pressure in the stock market has seen many characteristics resemble bear markets.

Here’s a quick list of 10 reasons why bear markets get the best of market bulls:

1.  Buying dips stops working. Bulls end up getting trapped at higher price levels, unable to profit from rebounds because they are waiting to break even.

2.  Momentum entries fail to be profitable. Rallies are usually chances for shareholders at higher prices to sell their shares and short sellers to take new, short positions.

3.  Perma-bulls confuse short covering rallies for bounces off a bottom. They are dead cat bounces that will later make lower lows.

4.  Perma-bulls stay long into 10% corrections and think the sell-off is over, but end up staying long through the 20% upcoming bear market.

5.  The perma-bulls fail to understand that when equities are under distribution, all stocks go down regardless of the underlying business and fundamentals.

6.  Stock markets go down when the majority is primarily long and the market runs out of new buyers.

7.  10% corrections and 20% pullbacks into  bull markets are normal; 2012 – 2015 price action is abnormal.

8.  All markets can trend in two different directions; you must stay flexible. Perma-bulls only think that stocks will go higher.

9.  Margin debt and leverage are great vehicles for creating bubbles, but they have their limits.

10.  The central bank can create bubbles, but they can’t sustain them forever.

Thanks for reading and have a great week.

Twitter: @SJosephBurns

Read more from Steve on his blog NewTraderU.

Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.