Bear Market: Everything You Need To Know To Cope With It
It would be nice to anticipate when the market reaches its high point, sell everything, wait patiently for the next crash, with people panicking, and then buy everything back at the low point when the market starts to rise again with frightening force.
This is what every investor dreams about, but the reality is quite different.
Throughout history, we have had several Bear Markets, as you can see from the image below.
Usually, we speak of a bear market when markets correct by more than 20%.
NASDAQ Composite could be considered to be in bearish territory, other indices not yet.
Bear Market, what we need to know
As I said at the beginning, neither I, nor anyone else in this world, will be able to know if and how this correction will turn into something worse, but as a great investor said, you cannot predict, but you can prepare.
So, here are some important things to remember about a bear market:
- Very high volatility
- The 'masses' go more crazy than on other occasions
- After the collapse, the rebounds are strong
- There can be strong rebounds even during the collapse, then down again
- This has already happened
- Expected returns rise
- Affects 99% of investments
Bounces of up to 40%, but in a market that continues to fall. These are also known as "bear traps," as investors, convinced that the worst is over, enter hands down only to see their portfolios fall again.
Regarding psychology and mass behaviour, we have addressed this many times, markets are a mix of greed, hope, fear, and impatience, all characteristics that in very volatile phases are accentuated and can lead us to make mistakes.
Additionally, as almost all asset classes (except cash and a few others) fall in the worst of times, we really feel we have no way out except to sell everything, and that is the worst mistake.
ASX XTX will test 2,022 support toady which is around the 38.2% fib retrace. Next fib retrace is 50% to around 1,600 level. Chart has support at 2,022 for today, 1,835 & then 1,593 for later if it continues to get worse. RSI is in oversold zone. Hopefully the worst is over after today.
US Feds have a 0.5% rate rise pencilled in for June + 0.5% in July. CPI should start to taper YOY as it's coming off a high base. Hopefully from August the US Fed becomes less hawkish & bond yields start to decline as CPI YOY declines. When this occurs the markets will turnaround. In the meantime, just have to go with the flow.
Maybe some relief after today as CPI figures are due in US. US futures currently green but too early to rely on.
From another article:
The coming week brings the latest favorite-son of the data-watching crowd: CPI. The consensus estimate for Core CPI is +0.4%, and for headline CPI only +0.2%, and the year/year numbers will drop sharply to what I predict will be great fanfare.Taking a Step Back…
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