The opening line in Aubrae DeBuse’s article, “The anatomy of a bull market,” in the September issue of Futures magazine, is “More money is likely made from bull markets than any other market condition.”  Okay, so this supposition speaks to the obvious, but the point of making the supposition is that one can make a lot of money trading/investing in a bull market, if one understands the structure of a bull market.

For me, the article is enlightening because, well, truthfully, I never really understood the technical nature of a bull market.  I am okay with this because the article clearly points out that defining the “periods” in a bull market is more art than science, but I am getting ahead of myself here.  Perhaps, starting with a definition of a bull market is helpful.

A bull market is a congestive market composed of an extended period of time in which the stock indexes continue to register higher highs.

DeBuse points out that a bull market is composed of four periods, two of which are easy to identify, and this is where it becomes both interesting and more artful as the “first and fourth periods are a blending of the bull and bear cycles and are more difficult to spot.”  He goes on to say these periods “are normally rife with conflict” and the cycles “never change from black to white, but rather evolve in stages of gray.”

To me this is one of the two key points in the article – there are no clearly defined edges, so one has to be able to discern where we are at any time in the cycle, much like having to know where one is in a hand when playing poker.  Being skilled at this is artful, to be sure, and if you can identify the point of the cycle that we are in, you can spot the “actual reversal points before they become clear to the general public.”  This is the second key point of the article – if one learns the characteristics of a bull market, one can make money. 

Now, according to DeBuse, “bull markets … take two steps forward and one step back …”and they “stagger around with little discernible direction.”  However, one clue is that “90% of all stocks will slowly follow the 100-day moving average north.”  So, one thing to track is the 100-day moving average.

DeBuse suggests that a bull market is confirmed by tracking the 18-month simple moving average (exactly how is not clear as he references, “Riding the bear,” (Futures, June 2009).  According to DeBuse, our current bull market was confirmed last October.  If true, then looking at the characteristics of the four periods that define a bull market should help us define our location, which will help us become better at what we do, which is making our money work for us.  Tomorrow, this is precisely what I will do – examine the characteristics particular to the four periods of a bull market.

Trade in the day; invest in your life …

Trader Ed