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This downward drive in the great equity bear market now under way will consist of between six and twelve intermediate declines, interspersed with wild rallies. That's how bear markets behave.
The last three weeks have seen a typical bear market rally, with investors convincing themselves that a drop in the oil price will solve everything. Markets have a wonderful way of pinning a superficial story to a transient change. But as the bear market progresses, the story just changes again. This rally is probably near its peak and after a couple of weeks of sideways movements, a new decline in equities can be expected.
Obviously it's best to sell at a rally peak rather into the following decline. When you decide that a major bear market is in progress, then look for the countertrend investment. In this case, the countertrend investment is the Government Bond (or Gilt in the UK), as a flight to quality proceeds.
You can find more about bear markets in our Newsletter 75.
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