One of the best ways to judge where you are in the cycle between bull and bear markets is by listening to the crowd psychology. There is a pattern that usually plays out the same way, from capitulation to despondency to depression to hope to relief to optimism to excitement to thrill to euphoria…and then comes the TOP!
What does it feel like we are today? To me, it’s nothing more than hope/relief? In addition to understanding where we are in the cycle- you also need to understand trends of what works during different times within the cycle. The first move takes place in the most beaten up stocks and sectors. The first stage is a junk rally (think banks in 2008). Small caps also do great during the first part of the cycle. New Magnet stocks also start to show up at this stage.
Watch my video below for more in-depth analysis of the cycles of a bull market.
Eventually large cap stocks begin lead the market as a global recovery is in effect and people become wary of the outperforming small caps. Energy stocks, basic materials, things like that. That is what we are starting to see now.
Towards the latter stages of the bull market, defensive names begin to lead. Utilities, consumer staples. The advance-decline line begins to falter. The crowd begins to talk about their 401K and the next IPO, the little guy wants ALL IN! And then the top gets put in.
In my opinion, and by the looks of the market action, we are in a bull market, largely unloved and going higher, with enough doubt and fear to continue to climb the “Wall of worry”.
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