“Intuition comes very close to clairvoyance; it appears to be the extrasensory perception of reality.” - Alexis Carrel
Here's a question for everyone: How long would you say this “bear market” has been going on for?
I think many would say that looking at the S&P 500 (IVV) or the Dow Jones Industrial Average (DIA), it looks like the decline really happened starting in late-July, and that we're still very early into a broad market decline. It's not like markets have gone down 20% or more yet, right? We could still collapse a lot further because all of these declines are very recent, right?
I always love it when the media uses “20%” to define a bear market. It's a totally arbitrary number. Furthermore, I love it that the perception of this decline is that it came out of no where. Anyone following my articles and taking an objective look at markets would have realized the Summer Crash of 2011 I had been writing about since June 8 was very much in the making all year.
I would argue to you that markets have been in bear mode since mid-February. While the perception is that the declines mostly occurred in a compressed period of time, the reality is that internally markets have behaved like it has been a bear market for over seven months, and in a very consistent way. I say this because areas of the investable landscape that do well in bear markets all started to outperform broader markets at the beginning of 2011.
Take a look at the below ratios of utilities (XLU), healthcare (XLV), consumer staples (XLP) and long bonds (TLT) relative to the S&P 500 (IVV). As a reminder, a rising price ratio means the numerator/sector/asset class is outperforming (up more/down less) the denominator/S&P 500.
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The longer something happens for, the more likely it is to reverse (a/k/a mean reversion). Consider this another piece of data favoring a Fall Melt-Up of 2011.
Markets have a funny way of rallying with the least amount of people participating.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Additional disclosure: The author, Pension Partners, LLC, and/or its clients may hold positions in securities mentioned in this article at time of writing. The commentary does not constitute individualized investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities.
