Saturday, March 15, 2014

Phase One of a Bull Market - The Denial Phase

The first stage of a bull market begins just as its last bear market is ending. In fact after a true multi-year bone-jarring bear market very few people are even interested in or even watching for a bottom. As an example consider the stock market in the early 1980's, for the more than 16 years this market had gone nowhere. In 1966 the Dow Jones industrial Average hit 1,000 and in late 1982 the Dow was again at 1,000. It had zigged and zagged for these 16 years but ended up roughly where it started. For the "buy and hold" investor this period was a bust. Most had given up on this sector and were instead paying a lot of attention to the hot sectors of the day, bonds and precious metals.

Since asset classes trend up and down in long cycles with many smaller "counter-cycles" in them people who have been trying to "time the bottom" have been caught time and time again buying into the "counter-cycle" rallies. They were thinking that they had finally found the bottom of the market- only to have the bottom drop out of the market, once again, burning the investor. So, once a true bottom has formed many participants remain highly skeptical that it really is a true bottom and stay away from the market even as the market continues higher and higher.

- Source, Mike Maloney's