“There is nothing new under the sun.” Ecclesiastes 1:9

“What happens today has happened before and will happen again.” Jesse Livermore

=================================

Few traders realize that Bear Markets are NOT just random periods when markets decline.

Primary Bear Markets are prolonged periods of declining stock prices. Each wave of the Bear Market shares specific recurring characteristics of that stage. Among them are the following:

Shape and Size
Market Breadth
Market Indicators
Economic Indicators
Specific Evolving Psychological Aspects as the cycle begins, matures, and completes each cycle:

Today, we focus specifically on shape and psychology.

Few realize that the Bear Markets have shared a specific repeating shape for the last 100 years for which we have data.

Each Primary Bear Market has unfolded in five waves. Each wave exhibited a mass psychology unique to that particular wave.

The First Wave follows a period of “descent into madness” by stock speculators. It introduces the Bear Market Cycle, which is eventually recognized by most, though many others remain in denial.
Wave Two, a Bear Market Rally, produces the psychology of “the return to normal.” Traders, pundits, and the financial media express the opinion that markets are no longer in a Bear Market and have returned to the Bull Market that prevailed before the first wave down. “Return to normal” psychology produces the most dangerous period in the entire cycle.
Wave Three can be brutal. This is when traders suddenly realize there has been no return to normal! The Bear Market remains alive and roaring even worse than in the first leg that had preceded this stage. Fear and desperation build, and selling becomes far more intense.
Wave Four emerges as participants begin to hope that a new bull market could be on the horizon.
The final stage is the most brutal of all five, as participants abandon all hope. Panic, capitulation, and despondency reign as many believe equities will never again be regarded as a legitimate wealth-building avenue.

1929-1932:

1937-1938:

1939-1942:

1968-1970:

1973-1974:

1980-1982:

2000-2002:

2007-2009:

2022-2024 (Third Wave In Progress):

Markets over recent weeks completed the “return to normal” delusion of Wave Two and have entered Wave Three. This is where we expect fear and desperation to build and for selling to intensify significantly in September.

Late Friday, we compared this week’s market through Friday to the last week in January 2022 as this Primary Bear Market was beginning:

“3:30… Markets are trading higher today, following yesterday’s positive divergence and the Powell comments this morning.

SPX is testing the area where it peaked Thursday following the NVDA beat. The pattern is remarkably similar to January 2022, as markets peaked just ahead of the very steep decline of February 2022.

We look for SPX to retest the downtrend line displayed in blue early next week. This would produce a retest of the SPX 50-day moving average as well.

(See images below).”

Analogs do not guarantee a repeat, especially on a granular level. But this analog to late January 2022 this past week is remarkable as:

The first downside drive took McClellan Oscillator to -90, like that of the last week of 2022, as Wave One began
Markets produced an “NSS” on August 18, 2023, similar to that of January 25, 2022
SPX followed the NSS with a surge to the 50-DMA, as occurred in the first week of February 2022
That surge also took SPX to the Downtrend Line in the first week of February 2022
Markets after a pullback are moving back to retest that surge, as they did in the first week of February, 2022
At just +574, breadth on the NYSE was even weaker Friday than on that retest in early February 2022

With SPX having rallied back to the trendline and the 50 DMA, we look for markets to turn down in the week ahead and accelerate downward in September.

But like in early February 2022, at this stage of the decline, we would not be surprised to see more testing of that 50-DMA and downtrend line early in the week, as displayed in the above image.

Trial Offer: $5 for a week, cancel anytime and pay nothing more, but still get the seven days

“There is nothing new under the sun.” Ecclesiastes 1:9

“What happens today has happened before and will happen again.” Jesse Livermore

=================================

Few traders realize that Bear Markets are NOT just random periods when markets decline.

Primary Bear Markets are prolonged periods of declining stock prices. Each wave of the Bear Market shares specific recurring characteristics of that stage. Among them are the following:

Shape and Size

Market Breadth

Market Indicators

Economic Indicators

Specific Evolving Psychological Aspects as the cycle begins, matures, and completes each cycle:

Today, we focus specifically on shape and psychology.

Few realize that the Bear Markets have shared a specific repeating shape for the last 100 years for which we have data.

Each Primary Bear Market has unfolded in five waves. Each wave exhibited a mass psychology unique to that particular wave.

The First Wave follows a period of “descent into madness” by stock speculators. It introduces the Bear Market Cycle, which is eventually recognized by most, though many others remain in denial.

Wave Three can be brutal. This is when traders suddenly realize there has been no return to normal! The Bear Market remains alive and roaring even worse than in the first leg that had preceded this stage. Fear and desperation build, and selling becomes far more intense.

Wave Four emerges as participants begin to hope that a new bull market could be on the horizon.

The final stage is the most brutal of all five, as participants abandon all hope. Panic, capitulation, and despondency reign as many believe equities will never again be regarded as a legitimate wealth-building avenue.

1929-1932:

1937-1938:

1939-1942:

1968-1970:

1973-1974:

1980-1982:

2000-2002:

2007-2009:

2022-2024 (Third Wave In Progress):

Markets over recent weeks completed the “return to normal” delusion of Wave Two and have entered Wave Three. This is where we expect fear and desperation to build and for selling to intensify significantly in September.

Late Friday, we compared this week’s market through Friday to the last week in January 2022 as this Primary Bear Market was beginning:

“3:30… Markets are trading higher today, following yesterday’s positive divergence and the Powell comments this morning.

SPX is testing the area where it peaked Thursday following the NVDA beat. The pattern is remarkably similar to January 2022, as markets peaked just ahead of the very steep decline of February 2022.

We look for SPX to retest the downtrend line displayed in blue early next week. This would produce a retest of the SPX 50-day moving average as well.

(See images below).”

Analogs do not guarantee a repeat, especially on a granular level. But this analog to late January 2022 this past week is remarkable as:

The first downside drive took McClellan Oscillator to -90, like that of the last week of 2022, as Wave One began

Markets produced an “NSS” on August 18, 2023, similar to that of January 25, 2022

SPX followed the NSS with a surge to the 50-DMA, as occurred in the first week of February 2022

That surge also took SPX to the Downtrend Line in the first week of February 2022

Markets after a pullback are moving back to retest that surge, as they did in the first week of February, 2022

At just +574, breadth on the NYSE was even weaker Friday than on that retest in early February 2022

With SPX having rallied back to the trendline and the 50 DMA, we look for markets to turn down in the week ahead and accelerate downward in September.

But like in early February 2022, at this stage of the decline, we would not be surprised to see more testing of that 50-DMA and downtrend line early in the week, as displayed in the above image.

Trial Offer: $5 for a week, cancel anytime and pay nothing more, but still get the seven days