These 3 Bear Market Arguments Are Flawed

These 3 Bear Market Arguments Are Flawed by Tony Mermer Chou

We developed a long term S&P 500 model that predicts bear markets and bull markets. Our model does not use traditional technical analysis because technical indicators do not cause bear markets or bull markets. We define “bear markets” as declines that exceed 33.33% and last more than 1 year. We deem the standard definition of a bear market – a 20% decline – to be a big correction.

Bear markets begin for one of two reasons:

1. The market was in a bubble and that bubble is now popping.
2. The U.S. economy was dealt a devastating blow.

We use valuation indicators to determine whether the market is in a “bubble” or not. For a market...