Bear Market?

Long time readers will know I don't get too hung up on labels like bear market. I focus more on the likelihood of down a lot and try to take defensive measures if I think down a lot has a high probability of happening. This is something I have written about a few times in the last month.

One thing I have learned along the way is that bear markets start slowly, by rolling over. One rule I have written about is the 2% rule. If the market averages 2% declines three months in a row that means we have a bear market. It happens less often than you'd think and despite what has gone on recently we are not there now for the S+P 500.

As I look at the chart, the SPX was down 2% in January, up 2% in February and down close to 2% in both March and April.

Back in 2000 the three month rule invoked at the end of November. The SPX was only down a little more than 10% from its all time high on its way to cutting in half when it bottomed out in the fall of 2002.

The point is the market gave investors plenty of time to get defensive. The action we have seen this year could be described as rolling over. Maybe it means bear market and maybe it doesn't. The answer to that is beyond any investor's span of control. What is not beyond the span of control is staying disciplined to whatever exit strategy you have chosen, hopefully when the market was healthier. I have made moves to get a little defensive, and may do more at any time. The market action for the coming month could be very important and is something I will be paying very close attention to.