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Bear Market Breakout?

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At DecisionPoint.com we have been operating on the assumption that we are in a bear market. We won't know for sure until the market declines 20% or more, but that seems a bit late to begin responding to what appears to be bear market action.

The market recently went through two months of some nice bottoming action, then it made a strong break above the declining tops line. Can we now breathe more easily regarding bear market prospects? No one knows how this will resolve, but over the years I have learned to be wary of breakouts. Let me show you why.





In early-2008 the market appeared to make a solid bottom, and a breakout took place soon after. But it was a fake-out, which was followed by the lion's share of the nearly -58% bear market decline.


There were at least four "fake-out breakouts" during the 2000-2002 Bear Market decline. They offered great promise, but ultimately failed to prevent the -50% decline.


Conclusion: Breakouts are often signals that a down trend has ended, and sometimes not. We are proceeding on the assumption that the bear market has not ended.



Technical Analysis is a windsock, not a crystal ball. --Carl Swenlin

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Carl Swenlin
About the author: is a veteran technical analyst who has been actively engaged in market analysis since 1981. A pioneer in the creation of online technical resources, he was president and founder of DecisionPoint.com, one of the premier market timing and technical analysis websites on the web. DecisionPoint specializes in stock market indicators and charting. Since DecisionPoint merged with StockCharts.com in 2013, Carl has served a consulting technical analyst and blog contributor. Learn More
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