The Bear Raid |
| Written by Ben | |||||||||||||||||
| Monday, 08 October 2007 | |||||||||||||||||
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Bears are those who sell down the market. The Bear Raid, when it comes will be harsh and severe. Many will get badly mauled.
After the market has hit the top, a fairly severe decline will follow after a slight downward bias. Many will think it is then safe again and start buying. This is actually a bear trap. Normally when the price goes back to where it has a downside breakout, it will start to trend down from there. From some soil erosion it will quickly turn into a landslide. The smart sell at what is given. The naïve hold on hoping to get out even. Sadly their hopes soon turn hopeless. Shares continue to trend down with unabated rapidity. Suddenly there are no more buyers. Your broker calls you to average down. (If he does that, change to another broker.) Downtrend can continue for a long time. Wait for the bleeding to stop. Consider to buy only when a buy signal has emerged. Averaging down is compounding your error. If not discreetly done, the result can be devastating. The first phase of a Bear Market is distribution which starts at the later stages of the preceding Bull Market. The second phase is panic selling. Here buyers thin out and sellers become more urgent. Prices suddenly accelerate into an almost vertical drop with heavy volume. Immediately after this the market normally says “Sorry! Are you still there?” A small rally is likely to ensue with small volume. It soon turns sideways to down, and continue to drift aimlessly. In the third and last phase, the downward movement is less rapid, trading turns sluggish, volume is down, the market becomes dull, and broker firms become empty. The “dogs and cats” are back to square one. Better grade stocks are almost there. The Bear Market ends when the worst to be expected has been discounted. It will do well to remember the characteristics of a Bull and that of a Bear so that you are less likely to be deluded by the madness of the crowd. Quotable quotes: "Great investors are not, and have never been, crowd followers." "The pessimist sees difficulty in every opportunity. The optimist sees the opportunity in every difficulty – Winston Churchill" "The heights reached by great men are not by sudden flight. While their companions are asleep, they are toiling upwards in the night."         
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