Saturday Rock Blog: Big Empty or Bull vs Bear

I saw a funny article on Bloomberg this morning headlined "Asian Stocks Rise as Index Enters Bull Market." If its not laughable its outright ridiculous that Bloomberg would make a call like this given the chart. The thing is, you only can really say a market is in a bull market or a bear market with certainty well after the thing really begins (6 months+). Its one of those things that far in hindsight is obvious but usually much of the decline has happened by that point. Sure, a market technician might come out and make a call on it based on some evidence they see in the chart, but its purely speculative until you're deep into the trend. In my first post of 2008 I declared that the (market leading) small caps had entered a bear market after making a significant lower low below a declining 200 day moving average. The small caps then declined more than 50% from that level as it turned out that I was right, but at the time it was pretty speculative. I wasn't exactly posting to the front page of Bloomberg.com either. Right now or even six months ago it would be obvious enough to say that yes, in fact, the small caps were in a bear market. But for Bloomberg to start saying that stuff is in a bull market here is crazy talk and it sure makes them look stupid. Here's the Chinese stock market:

Not even remotely long term bullish right? In that article they say that the Chinese stock market has entered a bull market because the "MSCI Asia Pacific Index has rallied 21 percent from a five-year low on March 9, technically entering a bull market." A 20% rally, that's their definition of a bull market? lol. The chart I have above isn't the MSCI index, but it is a China stock market etf (ticker FXI) so bear with me here. The FXI has had two other larger rallies since the all time high that were much greater than +20%, does that mean China is in its third bull market since the 2007 peak? It sounds kinda silly for them to call the Chinese stock market a bull based on a 20% rally given that the FXI is still down 60% from its all time high less than two years ago which means it will take more than a 100% gain to get to new highs. To give some credit to the Chinese, the FXI has made a clear series of higher lows and the 50 dma has turned up. However, the FXI has not made a series of higher highs and the declining 200 dma still lies above.

So how should we define bull vs bear market? I like a definition that I heard one time that a bear market is "a series of lower highs and lower lows below a declining 200 dma." It takes a long time for the 200 dma to start declining and the turn can often coincide with the break of a significant low (support). But like much of technical analysis, calling a bear market or a bull market is more art than science. Its one of those things where it might be obvious if you look at the long term chart, but it might be hard to define why you feel that way. That's why its ridiculous for Bloomberg to say that China is in a bull market today and why Doug Kass is an idiot for calling THE bottom in US stocks repeatedly over the past few weeks. They both will look like fools if they are wrong, but unfortunately they both look like gods if they get lucky.

Here's the S&P 500 weekly chart, does this look like a bull market to you? Be careful what you believe in the media.

Disclosure: I own puts on a number of equities including SPY.