Bull vs sideways market

[cl_noll]

Just curious, after what length of no net growth does a market cease to be considered a bull market? I see explanations of 20% drop to enter a bear market, but what do we make of the sideways volatility we've seen since Jan 2018?

[vand]

TBH I don't much like the "20% drop" as the widely accepted term for a bear market, as I think such generalisations are too simplistically framed, largely for the convenience of the talking heads.

I once remember one of Jack Schwager's market wizards saying that he personally thought of a bear market as having element of duration about it as well as magnitude, and I think this adds important context, so IMO there has to be an element of moves being large enough compared to the impulse move and over a long enough duration to qualify as either bear or bull.  A flat "20%" doesn't really do it for me, but but something like "25% over 6 months" I think is more useful.

US markets are still in bull mode; new highs have been set as recently as 3 months ago. But what is also accurate to say is that the new highs have been getting ever more marginal, while the trading range has also been tightening, ie the momentum has been waning.

[fattest_foot]

This is a tricky question, but when I look at it from the opposite direction, I think it makes sense to say it's a bull as long as it remains flat.

If it were a bear, and the market remained flat at the bottom, I think people would still consider that we're in a bear market until it recovered.

The more interesting hypothetical, however, I think would be at what point do we consider a recession risk has passed? If we have flat markets for a year, two, three? Is that equivalent to bypassing our traditonal ~7 year market cycle? Lots of people think we're overdue for a recession, but if the market goes sideways for an extended period of time, isn't that essentially accomplishing the same thing?

[ChpBstrd]

Market activity and asset prices will oscillate regardless of the language we use to describe the oscillation.

Bear, bull, recession, and even flat are all terms we invent to describe squiggly lines. The only point to quantifying each term is to communicate with others about the zig zags. So, pick a number.

[alienbogey]

A bull market goes up, a bear market goes down, so a flat market should be called....a halibut?

Halibut market. 

If the term catches on, please remember that you heard it here first.

[Bateaux]

When the bear comes you'll know it.  If you're in stock or stock mutual funds, a sickening feeling will punch you in the gut.  I'm older and have ridden out a few.  You'll survive, just don't panic.  The bear periods don't last nearly as long as the bulls if history is a guide.  a 20 percent drop does seem more of a deep correction to me than a bear.  A bear is more like 25 to 40 percent with some duration. We've got one coming, the Fed and Congress have kept the feed trough full of easy money.  Eventually, just too much debt builds in the system and it has to correct. 

[pecunia]

Can different segments of the market just cancel one another out?  If they stop selling cars, but real estate goes up, for example, could we have a flat market?  If Europe's economy is good, but Japan's is bad could we have a flat market?  I mean, it seems like when you are investing it is over the entire world.  Could it be that the entire market could only be dragged down by something like another episode of greedy big finance companies dragging everyone down?

[vand]

This is a tricky question, but when I look at it from the opposite direction, I think it makes sense to say it's a bull as long as it remains flat.

If it were a bear, and the market remained flat at the bottom, I think people would still consider that we're in a bear market until it recovered.

The more interesting hypothetical, however, I think would be at what point do we consider a recession risk has passed? If we have flat markets for a year, two, three? Is that equivalent to bypassing our traditonal ~7 year market cycle? Lots of people think we're overdue for a recession, but if the market goes sideways for an extended period of time, isn't that essentially accomplishing the same thing?

The problem with this scenario is that it doesn't clear out malinvestments accumulated during a long bull market. You need the liquidation of non-viable projects that are only forced in sharp downturns to release cheap capital into the hands of better managed businesses so that they can better use it to propel the next expansion.

So without a bear at the end of a bull market, there can't be much upside in the next bull market.

[habanero]

Can different segments of the market just cancel one another out?  If they stop selling cars, but real estate goes up, for example, could we have a flat market?  If Europe's economy is good, but Japan's is bad could we have a flat market?  I mean, it seems like when you are investing it is over the entire world.  Could it be that the entire market could only be dragged down by something like another episode of greedy big finance companies dragging everyone down?

When markets tank sharply correlations tend to increase. When investors flee the market, they have to sell stuff that's actually possible to sell, which generally means larger, liquid names regardless of market sector.

As for the global diversification, there is some evidence that the correlation is a bit one-way: If the US has a weak equity market, the rest of the world tend to follow suit, but not neccessarily the opposite. The explanation being the outsize size of the US market relative to other markets around the world. Currently the US stock market is at ~60% of the world's listed market cap, so it kind of makes sense.

[blue_green_sparks]

It seems most folks in the US that are reaching retirement age have little direct concern about the value of equities when you look at median net worth.

Age         Tot NW       W/O home equity
55 – 64:   $164,498    $66,547
src: https://wallethacks.com/average-net-worth-by-age-americans/

I rode out the last two bear markets but I'll sit this one out since I am already retired. I am a little surprised that the boomers did not do better.

[Blueberries]

This is a tricky question, but when I look at it from the opposite direction, I think it makes sense to say it's a bull as long as it remains flat.

If it were a bear, and the market remained flat at the bottom, I think people would still consider that we're in a bear market until it recovered.

The more interesting hypothetical, however, I think would be at what point do we consider a recession risk has passed? If we have flat markets for a year, two, three? Is that equivalent to bypassing our traditonal ~7 year market cycle? Lots of people think we're overdue for a recession, but if the market goes sideways for an extended period of time, isn't that essentially accomplishing the same thing?

Well, we've essentially been flat since since August 2018.  We are in a sideways market and have been for over a year.  No, they don't accomplish the same thing.  Recessions are almost essential for future growth.  A sideways market is a lot of churn and volatility.

[UnleashHell]

This is a tricky question, but when I look at it from the opposite direction, I think it makes sense to say it's a bull as long as it remains flat.

If it were a bear, and the market remained flat at the bottom, I think people would still consider that we're in a bear market until it recovered.

The more interesting hypothetical, however, I think would be at what point do we consider a recession risk has passed? If we have flat markets for a year, two, three? Is that equivalent to bypassing our traditonal ~7 year market cycle? Lots of people think we're overdue for a recession, but if the market goes sideways for an extended period of time, isn't that essentially accomplishing the same thing?

Well, we've essentially been flat since since August 2018.  We are in a sideways market and have been for over a year.  No, they don't accomplish the same thing.  Recessions are almost essential for future growth.  A sideways market is a lot of churn and volatility.

The s&p is up 120 points since January 2018. so sideways for effectively 21 months.

[Fru-Gal]

This is a tricky question, but when I look at it from the opposite direction, I think it makes sense to say it's a bull as long as it remains flat.

If it were a bear, and the market remained flat at the bottom, I think people would still consider that we're in a bear market until it recovered.

The more interesting hypothetical, however, I think would be at what point do we consider a recession risk has passed? If we have flat markets for a year, two, three? Is that equivalent to bypassing our traditonal ~7 year market cycle? Lots of people think we're overdue for a recession, but if the market goes sideways for an extended period of time, isn't that essentially accomplishing the same thing?

Well, we've essentially been flat since since August 2018.  We are in a sideways market and have been for over a year.  No, they don't accomplish the same thing.  Recessions are almost essential for future growth.  A sideways market is a lot of churn and volatility.

I think I know what you mean (everything is on sale) but can you explain? If for no other reason than I love to read this kind of contrarion thinking.

[Fru-Gal]

*contrarian*

[Buffaloski Boris]

A bull market goes up, a bear market goes down, so a flat market should be called....a halibut?

Halibut market. 

If the term catches on, please remember that you heard it here first.

Or a “flounder” market.

[maizefolk]

A bull market goes up, a bear market goes down, so a flat market should be called....a halibut?

Halibut market. 

If the term catches on, please remember that you heard it here first.

Or a “flounder” market.

I think we have a winner!

[vand]

Look at the moving averages to tune out the short term noise.

The S&P is within 1-2% of its all time high, and higher than its 233 day moving average, which is also still trending up. By all accounts it is still very much in "bull market" mode, despite the Q4-2018 scare.

It's true that it is only marginally higher than the early 2018 peak, but the 233dma back at that time was a full 380 points lower than it is today.

So by all accounts, the long term bull market is in continuation.

[marty998]

Look at the moving averages to tune out the short term noise.

The S&P is within 1-2% of its all time high, and higher than its 233 day moving average, which is also still trending up. By all accounts it is still very much in "bull market" mode, despite the Q4-2018 scare.

It's true that it is only marginally higher than the early 2018 peak, but the 233dma back at that time was a full 380 points lower than it is today.

So by all accounts, the long term bull market is in continuation.

Curious to understand the significance of a 233 day moving average?

A normal year has about 260 weekdays (assuming trading occurs on public holidays).

[vand]

Look at the moving averages to tune out the short term noise.

The S&P is within 1-2% of its all time high, and higher than its 233 day moving average, which is also still trending up. By all accounts it is still very much in "bull market" mode, despite the Q4-2018 scare.

It's true that it is only marginally higher than the early 2018 peak, but the 233dma back at that time was a full 380 points lower than it is today.

So by all accounts, the long term bull market is in continuation.

Curious to understand the significance of a 233 day moving average?

A normal year has about 260 weekdays (assuming trading occurs on public holidays).

It's a fibonnacci number, so fairly commonly used number by traders as their long-running trend. It's also pretty close to the number of trading days in a year (~253, depending on your locale). A lot of support and resisitance levels are built around a yearly average price.

You'll commonly see the usage of 50dma and 200dma when discussing medium and long term trends, however that is just because people have an affinity for round numbers. The moving averages which fall on the fib numbers can give a very elegant insight into short/medium/longterm trend (I like 21/55/233 but others have their own preferences).