How to Know When the Bear Market is Over...

I hope you're having a great Labor Day holiday.

The upcoming trading week should be an interesting test of the stock market's bearish demeanor and investors' attitude towards one of its most important companies, Apple (AAPL).

On Wednesday, September 7th, Apple has scheduled a much-publicized press event -  "iPhone 14" - where the company is widely expected to unveil the latest iteration of its iconic (and highly profitable) smartphone.

For us as investors, the important part is to watch the reaction in Apple's stock - which is down about 10% in the last 11 sessions:

In past years, the unveiling of the newest iPhone (always in September) was an excuse for investors to "buy, buy buy" the stock, attract more "buy" ratings from analysts, and watch the shares rally to new heights in following weeks and months.

Obviously that would do wonders for the stock, and the market right now. As the world's biggest, most valuable company, Apple casts a long shadow on tech stocks, and the three most important indexes - the DJIA (DIA), S&P 500 (SPY), and Nasdaq 100 (QQQ). It would also force me, with a current short-sale position against Apple stock, to reconsider my bearishness.

On the other hand, if Apple shares react with the equivalent of "meh"...that could also be an important clue.

I mean, if the typically dramatic, razzle-dazzle announcement of a new iPhone model isn't enough to shake the stock out of its drift downwards - it could mean that harsher concerns about overvaluation and a slower pace of profit growth are taking precedence over the enthusiasm of a new Apple product.

The end result would mean a lot more pain ahead for both Apple investors and the stock market as a whole.

The stock market is a betting game. We won't know if I'm foolishly wrong - or right, except to see how things play out in coming weeks and months.

Recognizing Bull & Bear Market Signals

I was privileged as a young investor and trader. I made lots of mistakes, as everyone does.

But because I used to be a stock market reporter at the time, I had personal access to the wisdom of esteemed technical analysts like Stan Weinstein (who I used to interview at his home in Hollywood, Florida), Mike Kahn, as well as traders and analysts who put their faith in fundamental analysis of stocks.

A few key messages I took away from those conversations, about the tell-tale signs of bull or bear market activity...

Healthy, new bull markets are filled with apprehension and doubt. Those apprehensions are what keep many investors and traders on the sidelines as stock prices slowly move higher.

So the daily trading pattern - in general terms - is that some bit of news is deemed terrible for the market, and investors sell heavily. Perhaps the market sells off 2%, 3% or even more - and yet somehow the market rallies back to unchanged or better.

One or two day's activity doesn't count for much. But if you start seeing this kind of pattern over a period of weeks, it's best to sit up and pay attention.

In bear markets, it's just the opposite. Bear markets trap investors because we're still motivated by greed and hope (with our memories of all the money we made in the prior bull market).

So we eagerly buy stocks in the morning. We're afraid to miss out (sound familiar from the July and August rally?)

But as the session wears on, we lack conviction about our favorite new stock, the stock market, or the economy itself. So that early strength turns into heavy selling and before you know it, the market finishes unchanged or lower.

In some ways, these are general platitudes. So it's a fair criticism to say "Well, duh, Jeff!"

Yet I'm amazed how often I've convinced myself of the opposite - staying bearish too long in a new bull market, or too bullish in a new bear market - by ignoring these simple truths.

Have a great holiday, and I'll continue to watch our positions in the coming week.

As for the goodBUYs portfolio - we're in really good shape, especially compared to the rest of the stock market:

We're getting a nice lift from our 2 short-sale positions - mostly from Apple - which is up nearly 9% for us.

But we're also starting to get traction with a more recent short position in another iconic tech company that's not doing so well these days.