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Markets Remain in Cyclical Bear Market


The cyclical bear market will last anywhere where from six to 18 months, depending on whether or not the U.S. catches the European Flu.

"Don't be afraid of missing opportunities. Behind every failure is an opportunity someone wishes they missed."
–Lily Tomlin

Entering the second week of October has, thus far, been nothing short of a reminder to investors of the famous expression of the upcoming holiday – "trick or treat." Since the onset of the massive "trading channel' beginning with the July-August swoon, the US markets have made five round trips from bottom to top of the secondary congestion and have left many wondering when this ultra-high-speed merry-go-round will end. Again begetting the question: Which is more important, not missing the turn (absolute bottom) or staying out of the way until further clarity arises?

While some clamor that last Tuesday's high-volume reversal day was the end of this madness, others attribute it to nothing more than high speed traders (and computerized trading systems) initiating buy programs at the bottom of this channel in attempt to scalp short-term returns. Neither of these, albeit true, have provided enough evidence to properly assess the probabilities one way or the other.

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Investing, as we've all been exposed to of late, is a game of endurance requiring composed patience -- the old adage "marathon versus sprint." These wild swings, if one is attempting to best the market, can be humbling if choosing the wrong side even for a moment. Hence the message this week is one of letting clarity appear before buying a ticket to ride.

As my firm has been discussing over the last few months, it is our opinion that the markets have entered and remain in a cyclical bear market which will last anywhere where from six to 18 months, depending on the depth of calamity and whether or not the U.S. catches the European Flu; it's currently showing some of the symptoms. The process of a bear market is rather daunting and delivers many tricks which can make investors feel like they're missing out on opportunity.

This was extremely evident at the beginning of the 2008 financial debacle cyclical bear market. In November of 2007 we penned a piece that illustrated a warning shot across the bow because of a dramatic shift in sentiment. This was soon followed by a piece in January of 2008, stating it was the end of the previous cyclical bull and investors needed to take heed. However, after the first watershed sell-off (19% from the 2007 high), it took nearly five months before the market rolled into the second stage of the bear market, dropping the index nearly 54% from peak to troth – the largest cyclical bear market in history since the Great Depression.

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The point is this: The period of congestion, after the first sell-off, can again, make you feel left out and missing something. This is not uncommon. It is at this point that investors must ask themselves the aforementioned question at the end of the first paragraph and look at the risk verses the reward. When the market bottoms it won't be a guess. There will be a washout period, again with volatility, and provide a more reasonable environment for investing where the guesswork will be put aside. For now, this has not presented itself.

Message: Nothing is worse than the feeling of missing out… except when realizing this not to be the case.

Editor's Note: Read more at Tuttle Asset Management.


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No positions in stocks mentioned.

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