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Since last September, some players in markets have bought the "imminent recovery" story sufficiently to generate a 20% rally in share prices. In a bear market, news sentiment is one of the best indicators of peaks and troughs. Troughs are usually marked by front page headlines about losses accompanied by the gratuitous advice "this is not the time to sell" while peaks are marked by the "confidence has returned, these should do nicely" school.
In a bear market you sell the peaks. The technical indicators also confirm we are dealing with a top area. The repetitive pattern of the declines in spring 2001, the rally into the early summer, the new declines in late summer and early autumn and the subsequent rally, that failed to retrace all the lost ground, are typical of a bear market.
A fuller explanation of our reasoning appears in Newsletter 53 which is now available. For subscription details visit www.gilt.co.uk/news.htm (if you prefer, you can wait to read the back number when Newsletter 54 is published later this year, but then you will be selling into declines instead of selling a top area). For back numbers also visit www.gilt.co.uk/news.htm
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© Kauders Portfolio Management 2002