Wednesday, July 08, 2009

Possible Scenario - A Long Bear Market

Two articles post on, Art Cashin: Dow Trapped in 17-Year Cycle and Market Halfway Through Bear Market Cycle: Rosenburg, share a scenario that the current bear market may last another seven to nine years. Mr. Cashin believes the stock market is a little over halfway into a 17.6 year bear market cycle, based on historical trends. Mr Rosenburg reports that economic fundamentals are still very poor and may require up to nine years to recover.

Since there hasn't been a capitulation, or significant discouragement with stocks, I can see how this bear market might continue for a while. Although I hope this cycle ends in less than seven years, I do agree that the indices will likely be in a bounded trading range for the next 1 to 3 years. Therefore, I will be adjusting our stock ownership plans in the following ways:

  • Buy on dips. I will make purchases during pull backs, like the one that is currently happening. The challenge is to be disciplined enough to wait for pull backs, as described in My Plans for the Stock Market Pullback.

  • Sell into rallies. Since I expect the bear market to last a while, I will consider any rally to be short term. Thus, once purchases achieve gains of 5-10%, I will actively look at selling the positions.

  • Keep some long term holdings. We will maintain investments in our managed accounts (about 10%) and my company stock (about 30%) as a hedge against the start of a new bull market. Thus, if I'm wrong and the market continues to advance, we will have some participation in the gains.
  • While this approach does not guarantee positive gains, I will feel better if we are able to take some profits during rallies and then have less invested during the subsequent down trends.

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    This is not financial or investment advice. Please consult a professional advisor.

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