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This Bear Is About To Draw Blood

May 04, 2020 6:12 PM ETSPY74 Comments
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  • Traders have ridden the Bear Market Bounce off the March 23rd lows to an epic 30% gain.
  • After an epic rally, many speculators are only now piling into the market, just in time for its collapse.
  • The classic third stage of a bear market is a renewed, grinding selloff that will take the market to new lows, driven by epically corrosive macroeconomic and stock fundamental news.

This Bear is About to Draw Blood

In the last few weeks, we have received several contacts from clients, in addition to subscription cancellations, from those frustrated that our models have held very conservative ETFs – and in many cases cash-proxy ETFs – that have essentially held steady for the past month-plus. However, our designers are proud of our model's performance, because they are responding as designed, avoiding periods of high risk and relying on cold, hard, quantitative facts for their decisions – rather than the fetid human emotion upon which most individual investors rely.

After a historically quick -34% selloff, the market has ripped higher by about 30% off the March 23rd low (it would require a 52% gain to get back to even). The current rally has now sucked in the maximum number of speculative investors – i.e., mostly inexperienced gamblers who rely on their 'instinct' for their decisions. 'Buy high and sell low' is the approach dictated by human emotions – until these people lose so much money they finally throw up their hands and turn their savings over to a mutual fund manager who doesn't do much better than amateurs (avg. 20+ year mutual fund return is 2.6%). Of course, the alternative is using a rules-based, quantitative investment approach – and following that guidance to the letter.

Investors who are following our models with discipline should keep in mind that the current powerful bounce is stage two of a classic bear market. Stocks are following the game plan this writer has seen so many times prior, since first buying equities in the 1974 bear market lows. Stage three of a bear market is a continuation of the long-term downtrend at a slower, brutal, grinding pace that foreshadows the financial catastrophe that lies ahead.

The third stage of a bear market gets underway when

This article was written by

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ETFOptimize.com offers rules-based, quantitative investment strategies via low-cost subscription for individual investors and bespoke designs for professional fund managers. We base each of our six models on indicator composites built from more than 50 uncorrelated data sets in the Fundamental, Macroeconomic, Sentiment, and Technical categories. This diversification of indicators drives our models to select the optimum ETF for conditions, generating profits whether stocks rise or fall. Our collective track record across six live, out-of-sample strategies includes 100% consecutive winning years since 1998 – with subscriptions starting as low as $9/month. Learn more about the profound performance breakthrough offered by the data-driven investment strategies at https://ETFOptimize.com.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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