CHART CHAT

Bull or Bear

In this edition of Chart Chat, we will discuss some additional underlying resources to research when preparing shorter-term trading strategies. In Chapter 2 of our publication When to Buy and When to Sell; Combining Easy Indicators, Charts, and Financial Astrology (available on Amazon), we introduced some basic chart patterns and how to interpret them.  

     Utilizing Moving Averages, trend lines, and indicators, as well as understanding price action, cycles, and money flow are all valid sources to implement into any strategy. Adding another layer to your research, however, that reveals the underlying conditions of the overall market, or industry, can make a huge difference prior to the analyzation of a specific stock chart. If you are not an experienced day-trader or investor, it is very easy to get caught up in the news, and short-term price action, that may not necessarily reflect the true trend or direction.  

     When visually analyzing a chart, it becomes rather easy to determine the trend for the desired time frame on the surface, but what are the underlying factors? Although we often preach that discipline and consistency are of the utmost importance, it is extremely difficult to control one’s emotion during significant drops in the market, especially with any newly open positions. One of the biggest challenges a trader or active investor faces is how to decipher a potential dip or minor pullback, from a correction or bear market. Is it a short-term blip, or a longer-term decline? In fact, the average bull market lasts 3.5 to 4 years, while the average bear market only lasts 1.5 – 2 years, and has historically been shorter than the bull market that follows or precedes it. The most recent bull run lasted 11 years, from 2009 – 2020, with only a few corrections, made a rather quick recovery, and continued until 2022.  

     Some common indicators that are generally used as a guide include Fibonacci retracements, short-term moving average lines crossing longer-term moving average lines, as well as some economic factors such as interest rate policy adjustments and recession indicators. Many define these market declines as follows: 

Dip – A very slight, temporary downward price change, in a strong uptrend

Pullback – 5 to 10% temporary decline from a recent high, top, or pivot point

Correction – 10 to 20% drop from a recent high or top

Bear – 20% or higher prolonged decrease from cycle or recent high or top    

     While these definitions may be accurate, they omit all the internal factors that may be present during any type of price decline. How many times has a stock dropped 10%, or even 20% on bad news, analyst downgrade, or earnings reports, only to recover 3 days later based on over-reaction? It is important, if possible, to determine which type of decline is underway, in short order, as it will likely determine the decision to buy or sell for those who are not long-term investors. Note the word “prolonged” in the bear definition. A true bear market takes time to develop and normally involves a steady decline through key support areas on a chart. 

     One such way to research the “internal” factors of the major markets during select time frames is to visit a financial website, like BarChart.com, to review index and/or sector momentum/performance. On BarChart, on the top left menu, first click Market Momentum. There you will find information regarding new highs and lows, as well as many percentages regarding market momentum. Scroll to the bottom of the page to the heading “Market Performance Indicator,” and under Market Averages you will find the BarChart Market Momentum Indicator (BMMI), which reflects the average of all official SEC approved stocks over $2, in all major indices, trading above the selected popular moving average time frames. 

FIGURE 1 - Image by BarChart.com

     Figure 1 depicts this daily chart, which displays the percentage of all stocks that closed above their 5, 20, 50, 100, 150, and 200-day moving averages on Friday, March 7, 2025. It also provides the same for the previous day, the prior week, and the prior month. Although these are based on lagging information, the progression from bullish to bearish is clear throughout the one-month time frame. Please note that under 50% in the 200-day column is the universally accepted time-period to declare a bear market.  

      Next, return to the menu and click on Market Performance, and scroll past the initial line chart. This page displays a larger statistical chart that breaks down the major sectors and indices (as well as sub-categories), with the same information. These figures provide a closer, and more accurate, description of the “true” areas of market strength and weakness relating to equities.

Figure 2-a - Image by BarChart.com

       In Figure 2-a, the S&P 500 shows the 200-day MA at exactly 50%, teetering on the brink of a bear market. The detailed breakdown of specific sectors suggests that Financial, Communication Service, Utility, and to some extent Real Estate, stocks, have been the strongest in the last 6 months or so, while Basic Materials and Technology have been the real laggards.

Figure 2-b - Image by BarChart.com

         In Figure 2-b, bear market conditions in the Russell small caps and the Nasdaq composite are quite clear, while Dow Jones Industrials stocks have been the strongest and quite far from bear conditions. The progression of the time frames can greatly assist in the selection of stocks, as short-term strength (or weakness) on the 5-day may be an anomaly, or an indication of a quick trade opportunity, while the 50-day may be a more accurate sign of true reversal. Either way, the strength of any underlying trend can be detected by checking these charts, which is suggested at the beginning of each trading day. Experienced traders can use this information in a number of ways, however anyone can benefit from understanding where the trend truly lies. 

      In future editions of Chart Chat, we will continue to provide various technical pattern education, analysis, and potential price movement set-ups. 

      For those interested in Astrological analysis, planet positioning and transits, through the zodiac houses and signs, have many similarities to technical analysis. The theme of cycles, repeating patterns, and historical data can be viewed the same way, as the probabilities can be calculated for previous percentages of success. The difference is the use of an Ephemeris, a basic calendar of future planetary transits and aspects (see Chapter 4 of our publication for details), which allows for future positions to be known, unlike the next line, bar, or candle on a technical chart. Although no source will be 100% accurate, this extra layer can be very useful. For those interested, please refer to Trader Transits and U.S. Stock Market blogs, updated regularly on this site.

***As always, this information is not intended to be financial advice, or any specific buy or sell recommendation, but rather a guide to assist the reader in some further understanding of current economic conditions/movements in the sky, and how they can affect moods, behaviors, world events, and financial markets.