Why I'm Still Bearish (For Now)

The five largest one day percentage up moves in the history of the DowJones Industrial average all occurred during a bear market.

March 15, 1933: 15.3 percent

Oct. 6. 1931: 14.9 percent

Oct. 30, 1929: 12.3 percent

Sept. 21, 1932: 11.4 percent

Oct. 13, 2008, 11.1 percent

If we look at the seven biggest up moves in terms of Dow points, we can see they also occurred during a bear market.

Oct. 13, 2008. The Dow rose 936.42, or 11.1 percent

Oct. 28, 2008. The Dow rose 889.35, or 10.9 percent

Nov. 13, 2008. The Dow rose 552.59, or 6.7 percent

March 16, 2000. The Dow rose 499.19, or 4.9 percent

March 23, 2009. The Dow rose 497.48, or 6.8 percent

Nov. 21, 2008. The Dow rose 494.13, or 6.5 percent

Nov. 30, 2011. The Dow rose 490.05, or 4.2 percent (The Jury is still out on this move.)

How is that possible? Surely the biggest up moves should happen in bull markets, not bear markets. Right?

Always remember that the market continually tries to fool as many peopleas it can. In bear markets, everyone is looking to buy the bottom,whereas in bull markets, everyone is looking to sell the top.

Bull and bear markets can't happen without this phenomenon coming intoplay. I bring this up because, even with all of the sound and fury ofthe last few weeks, the S&P 500 is still down 24 points for theyear!

So far, the long term trend indicators that we use in my educational course ETF Master Tradercontinue to suggest this is a bear market rally. In spite of recentbullishness, the over riding trend is in fact down and not up. I mustadmit that even for me this is hard to hold on to, given the plethora ofgood news we have seen hit the tape.

We've seen US corporate earnings hold up very well, unemployment isdown, and manufacturing is improving. European debt yields have shrunkdramatically, especially the! all imp ortant 10 Year Italian yield, whichhas dropped from near 7.50% to 5.85% in a week! The European bond marketappears to be signaling that the Euro Zone may in fact survive. Surelythat has bullish implications for equities?

Maybe... but I think the next big question looming in investors' mindswill be the impact of all those austerity measures in Europe. Surely wehave to see an economic slowdown over there. Could that cause a slowdownin China or, goodness forbid, a slowdown here in the good old U S of A?

The bottom line is that there is still a great amount of uncertainty,and we are right up against the upper trading levels of the S&P 500.When faced with this type of dilemma, I will typically take a step backand rely on my long-term trend indicators.

As I wrote earlier, those indicators are still bearish, and as such Imust maintain a bearish stance. From a risk reward standpoint, that isactually easier to do up here against resistance. If I am wrong, I won'tbe wrong for big money, since everything is so close to resistancelevels (and as such my stop loss points are relatively tight).

If we do get a breakout here, I'll be stopped out on my shorts. I willthen wait for confirmation from my trend indicators, and if they confirma bull market, I'll simply wait for the inevitable first wave sell offafter the primary move and get long.

Will I get the very best prices that way?

No, I will not. But what I will do is insulate myself from massivelosses if this market decides to do a sudden about face. Because if thathappens, you may not have the opportunity to get out.

Long story short, wait for the confirmation before going buck wild bullish. Better an ounce of prevention than a pound of cure.{$end}