The stock market appears to have experienced a cathartic event as the recent decline painted out three consecutive 80% down days followed by a 90% up day on December 26th. Then two violent rally days have contributed to the signs that at least a short term bottom has formed.
For now the entire bear market decline may have run its course, and the resumption of the bull trend has begun. However should we reach new all time highs or numbers close, we will need to institute a heavily defensive position. As we have stated previously, growth can’t go on for ever, and what growth we see now is just that created by the volatility referred to in the first article.
Given the behavior of the market during the recent weakness, we are quite suspicious that the larger and complex bear market is the most probable and still on track with our expectations. Obviously, the market’s behavior during the first quarter will be critical to the actions required vis-a-vis risk and portfolio management.
Our views from the above described are best explained as “The End of the Beginning.” We expect to see some performance for the next few months. This was just the first phase of the end of the bull markets. Please keep in mind, bull phases exist within a longer Bear market, just as the opposite exists within a longer Bull market. The numbers we see coming out of the government and employers, continue to be strong. I want to reiterate, though, that these are lagging factors.
We still strongly suspect the end of 2019 will be larger phase of the Bear market. Whether it is triggered by political or economic events continues to be a question. One we are working on the answer for every day here.