Market Roadmap: Learn from the "Bear of 2000-2003"

A subscriber - noting my bearish commentary lately - recently asked me a good question...

"How will you know if you're wrong?"

It's a good question. I mean, suppose right now turns out to be a great moment to invest in the market. Everyone appears to be getting fairly bearish (including me). Perhaps it's a good time to consider being a bull and expect the markets to go up, right?

So to answer the question...how would I know if I'm wrong, and need to be less bearish and more bullish?

The key is looking for what I call "new near-term highs."

Trapping Bulls in a Bear Market

We can see a good example of the lack of new near-term highs - and the treachery of bear markets -  in the chart below from the 2000-2003 bear market.

It compares the S&P 500 to the Nasdaq of that era. Look at points #1, #2 and #3...notice a difference?

The S&P 500 tried 3 times to make a new near-term high - and failed. Basically it went sideways for 4 months before being hit with a new and final bear market decline.

Meanwhile, the Nasdaq couldn't even go sideways. At each of the numbered points on the chart above, it gets weaker and weaker.

Both indexes went on to drop 33%, and 50% respectively, from the (#1) highs on the chart to the (#4) lows.

I'm not bringing this up to bring you down. But to get back to the point...that's how I'll know if I'm wrong about our own stock market.

If our own indexes can get back to and above the high points of early February (around 4,200 on the S&P and 313 on the Nasdaq QQQs) ...that's when we'll know that maybe, just maybe, the bull market is back.

But what do we see so far when we look at those market indexes right now?

It's still a general pattern of "lower highs."

In fact, the smallcap indexes - which contain many of the high-growth stocks of tomorrow - are looking progressively worse for the wear, compared to either the S&P 500 or the Nasdaq:

So that's why we need to stay flexible, yet careful - and skeptical...

Whenever stocks appear to "firm up" and rally, as they did in January and February, the Wall Street folks start saying that the market is starting to "look better."

They start hanging out the "new bull market" headlines like this one from a few days ago:

And you know what, maybe this fund manager is right.

But I've interviewed Wall Street pros in my stock market reporter days. They have a lot more zeroes to their net worth than I do.

But they don't own a crystal ball. The only difference between us and them is that when they're wrong...it's not really their money that's being lost - it's their clients.

So that's my word of advice...

New bull market? Let the market prove it first.

Best of goodBUYs,

Jeff Yastine