Bull Market: Clever Things to do before it Ends


For nearly a decade now, investors have been wallowing in a bull market. Of course, this is a good thing. But we have to remember that a bull market has a beginning and therefore has an end. It’s much like a bear market, which comes and goes.

The idea is to earn what you can while everything’s upbeat. However, you must also secure your future against a bear market by doing these clever things before the bull market ends. Let’s get into the meaty portion.

bull market

How to Recognize the End of the Bull Market

Early this year, the Dow Jones Industrial Average topped 25,000 points and then smashed 26,000 just one week later.  That didn’t last a long time, though. February saw a market correction, as predicted by many analysts.

According to Mark Morley, a financial planner from Oklahoma, no one can certainly predict the ups and down of the market. So that leaves you with the choice of staying invested, armed with a long-term plan.

But, is there a way to recognize the coming of a bear market?

Stellar Valuations Do Not Equate with Selling Opportunities

Even if you see large gains, along with the surprising length of the recent bull market for stocks, you cannot just decide that it’s time to sell.

Many analysts advise traders like you do extra research in times of bullish sentiment. Before you sell, find clues that indicate a longer upside in the future. This can be especially true if you don’t see any signs of trouble ahead.

Signs to Watch

For you to recognize the end of the bull market, you got watch out for crucial signs.

Experts suggest that skepticism is one thing to watch during a bull market. According to Ihor Dusaniwsky, the head of research at a financial analytics firm, many investors have started to increase their bearish bets during the past couple of years. This indicates that these investors are expecting a huge market sell-off.

This is what you need to do: the higher the market climbs, the more you should pay attention to your shorts. You have to see to it that you have enough hedging positions from ETFs or beta stocks. This serves as a safeguard against huge losses from your longs during a detrimental market crash.

You also have to closely monitor leading economic indicators.  These indicators include consumer sentiment, capital goods orders, and manufacturing orders, among others. If the bull market will soon end, you’ll see that these indicators are starting to decline. That’s a good time to prepare for the incoming market correction or market crash.

You may also try to reduce the number of your winning stocks, while also investing in short-term Treasury bonds—plus other high-quality fixed-income assets.

Having a Plan Means Security

We know that it’s an enormous task to track market tops in real time. With that in mind, there’s a lesson to learn from long-term investors.

Long-term investors—the smart ones—usually have well-constructed and diversified portfolios. That happens to be the most important thing, and the most basic, in investing. Do not panic. Remember that the worst thing you could do is to be emotional during a bearish market.

A smart thing to do is to follow your investment plan, even if the headlines tell otherwise. There’s a huge possibility that you won’t suffer from price drops more than from your emotional reaction. Keep a cool head.

If you keep it together, it will be easier to construct a bear-market-proof plan. Strive hard to be rational even if the sense of impending doom is great.

Once you’ve created such a plan, you can sit back and relax and watch how the great bull market will end.

How do you keep your head clear, by the way?

According to experts, there are tons of ways to be levelheaded during the end of the bull market.

·         Shut your ears from the hype. You can blame different things and run around shouting, “the end is near!” But those things won’t help. The best course of action: research and prepare.

·         Do not swallow news up. It’s good to be updated on the most important news, but not to the point that you become paranoid. You will most likely associate everything to a market crash.

·         Remember this: even if the markets have depressing points, the trend is generally always upwards.

Preparation 1: Talk to the Bears

Since we have tackled skepticism, one smart thing to do is to discuss this with bearish traders, if you can find one.

 Some traders refuse to suspend their bullishness. Thus, it’s hard for them to listen objectively and cleverly to bearish ones. And if they ever managed to actually discuss with bears, the bulls usually complain of being paralyzed. This is because in reality, both bulls and bears have strong talking points.

Those talking points come from fact-checked statistics and analyses, which makes deciding to be bullish or bearish even more difficult.

If you feel compelled to listen to the bears and you cannot come up with strong answers, then maybe it’s high time you re-evaluate your market outlook, if only to invalidate bearish sentiments.

Preparation 2: Hunt for “Uninteresting” Companies

As implied above, another smart way to brace for a bear market bite is to swerve away from risky stocks.

What you want to do is to find companies with strong balance sheets—those tagged as “boring” by aggressive investors. These companies grow with the market during bullish trends, but they lose a lot less when the market spirals down.

Let’s take a retail company for example. This retail company, to everyone’s surprise, gained a lot during the financial crisis in 2007 and 2009. It gained 7% even when the S&P 500 staggeringly dropped 57%. 

Such companies’ long-term returns come from dividends. They can be unexciting and uninteresting, but you wouldn’t want to gravitate towards dynamic companies if your gut feeling tells you that a bear market is just around the corner.

Meanwhile, if you think the bull market will continue its reign, better check out the strategies below.

Learn more about dividend stocks. Read Dividend Stocks: Illusions and Misconceptions

Trading Strategies during a Bull Market

The following are the most common trading strategies that many investors use during a bull market.

bull on the backdrop of a chart

Buy and Hold

This is arguably the simplest and most popular strategy. Passive investors love this. The goal is to gain from the bull market, which should sustain its rise to make the buy-and-hold strategy work.

Once you place a long position, you just let it be until you find clear-cut and definitive signs of market reversals.

Increasing Buy and Hold

This one’s for a more active and more aggressive trader. The goal is to add more to your holdings and profits while the bull market lasts.

You buy additional shares each time the stock or mutual fund’s price increases. The amount of increase should ideally be a fixed price. To illustrate: you buy additional shares in a stock whenever the stock’s price increases by, say, $2 a share. You buy additional shares of a stock you first bought at $50 a share when it reaches $52, and another additional share when it reaches $54, and so on.

Lastly, you continue doing this when the price hits predetermined level—or when you think that the market has already topped out.

Retracement Additions

Other investors are more aggressive, and they try to make substantial additions to their holdings. They seek for the most advantageous prices, too.

If you’re that kind of investor, you should also watch for retracements or downward corrections throughout the whole bull market. When retracements happen, you can buy more shares on the slide, assuming that the bull market will go back to its upward trajectory. If all goes according to plan, you got yourself additional profitable shares.

Full Swing

The most aggressive investors practice this strategy, taking advantage of the oscillating movement of the market.

If you do this, you try to profit from trading with the swings of highs and downs within the bull market. You use buying and short-selling positions as the market moves back and forth, up and down.

Further, you have to be thoroughly involved in watching over charts and in monitoring the market. You have to obtain the advice of market analysts or use your own charts. Most traders who do this focus on momentum oscillators, which tell them overbought or oversold states with support and resistance levels.

When you see signs that the market has temporarily exhausted its momentum, you exit long positions and begin short-sell positions. Doing so will aid you earn from a downward correction. If technical indicators tell you that the correction will soon go away and the bull market will take the spotlight again, you close out all your short-sell positions and start new buying positions.

You do this over and over again, seeing that there could be an overall, long-term uptrend. You can take bigger buying positions than selling positions, but you have to weigh the trades in the direction of the bull market.

In the End

The most important thing to remember during any kind of market is this: be prudent and be ten steps ahead of the whole market. You cannot predict things with 100% accuracy, but you can always make an educated guess. Good luck with the next bear market! 

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