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?