Bear Market

The bear market definition mirrors the bull market definition under this Dow Theory framework. Bear markets are not limited to weak companies. A bear market is defined as a 16% decline in both the Dow Jones Industrial Average and the S&P 500. A bear market is identified by confirmed lower highs and lower lows. A bear market definition produces a sell signal once both indexes have confirmed a 16% decline. The third sell signal triggers when both required indexes have declined by 16%. Bear markets tend to cause all or almost all stocks to decline together. The normal buy signal setup occurs within a bear market when the market stages a secondary reaction against the primary bearish trend. When liquidity dries up or outside forces alter investor behavior, selling can affect nearly the whole market. Bear markets are commonly linked to liquidity shortages or exogenous shocks that pressure the whole equity market. The third sell signal is based on the bear-market definition when no completed secondary reaction exists after a strong bull market. The definition applies after a strong bull market in both indexes begins falling without first forming a meaningful secondary reaction. A confir…