About To Enter A Bear Market?

Today’s MarketWatch headline declares “The S&P 500 is on the brink of a bear market.  Here’s the threshold”.

What magic threshold?  20% down is deemed a “widely used technical definition of a bear market”.  Well here’s another one:  Any decline extended over time.  And another: Any series of lower highs and lower lows.  So why this one … 20%?  And what’s worse, why is it said to “enter” a bear market when it reaches 20% down?

Why would the media want to avoid discussion of a bear market until it’s 20% down?  Possibly to avoid scaring retail buyers out of the market before the big money has done most of its selling?

I don’t know, but I do know this most recently invented definition of a bear market (yes, the others date back well over a hundred years) seems fishy.  Can’t think of any rational basis for redefining a bear market numerically … after all if you mean 20% it’s easy enough to just say it.  And no one has shown that a decline somehow becomes different in kind at 20%, let alone any artificial numerical level.  A magical transformation, no?   If anything, technicians are much more attuned to Fibonacci retracements, none of which are nice, round, media-friendly numbers.  Sorry, but 20% is a choice of reporters and editors, not real market technicians.

And does it sound odd to anyone else that it “enters” a bear market at 20% down?  If it were to happen tomorrow, it would be May 13, more than four full months from the January 3 top.  That’s when the bull market ended and the bear market began.  Contrast that with Financology’s own declaration of a bear market on on February 7. Which is more useful to you?

2 thoughts on “About To Enter A Bear Market?

  1. sunpearl71 says:

    Hi Bill,

    Without a doubt, the Financology’s declaration was more useful in comparison to the recent mainstream media announcement.

    Media’s focus is on a specific event rather than an emerging picture such as the fall in stock prices over an extended time – and what better figure than 20%, that’s not too high and too low and is also part of other rule-of-thumb measures such as the 80-20 Pareto principle?

    I agree with your view that perhaps the intention is not to scare off retail before big money sells its positions.

    Appreciate your continuing commentary on this interesting but challenging phase of the global economy.

  2. Bill Terrell says:

    Thanks Sunpearl. It’s interesting and challenging … glad to have you following with us.

    It’s probably partly a misguided impulse to oversimplify … it’s mass media. Maybe they think they’re biologists and have to have a formal taxonomy for a “bear”;-). Also by putting numbers on it they can avoid using the term “bear market” early on like I did and avoid scaring the rabble. Kinda like they don’t use the word “depression” any more … it’s even getting so they don’t like to say “recession”.

    Then you have markets like Treasuries. The thirty year is down over 35% from its highs … a bear market, right? As you go shorter in maturity, the decline grows smaller … near zero at thirty days. At what point does it suddenly become not a “bear market”? 12.2376 years??? 15.3821 years??? The 20% rule leads to nonsense like this.

    I just take the view that some terms are more useful because they aren’t quantified … after all if you want numbers it’s easy enough to just state them. What if you want to say the market’s going down over a sustained period and don’t care about an exact amount? Their way you don’t have a word for it. I’m hardly alone … serious analysts like the folks at RIA also see it this way.