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When Can You Call it a Bull Market? |
by Ryan Teeples
There's discussion and debate all over the news and analysis world right now about whether or not we're in a new uptrend in the US stock market. "This is the start of a new Bull Market," some say with conviction.
Others argue with gusto that this run-up is a house of cards. Others are smart enough to admit they aren't sure. None of them much care, however, because they aren't traders themselves, and they know when it comes to news we have the attention span of gnats. Gnats with ADD, even. 
A Nice Run Recently...But a Bull Market?
But traders who have been frustrated with the uncertainty, volatility and outright chaos of the last six months are silently wishing an obvious new trend would emerge, up or down. So what do we make of this run-up we've seen in the markets the last 90 days or so?
The Dow Jones Industrial Average dipped below 6,500 in early March, only to launch from the low and close over 8,700 earlier this week. That's a nice run, to be sure. But when can you say we're in an uptrend?
And after the GM bankruptcy, do you really even understand what the Dow Jones Industrial Average is?
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A Simple Man's Formula
The answers are as varying as they are convoluted. So I offer here the simple way I look at it. I'm not a technical trade timer, so the dollars and cents are less important to me than some, but for long-term traders who are just trying to keep up, this may work as a great guideline.
Note that despite the nice run we've had the last few months (chart below), we have yet to reach the high we saw before the major down-turn to new recent lows. November 4, 2008 featured a 300+ point rally on the Dow to 9,625, but was followed by a plummet to levels not seen since the mid-1990s.
After bottoming out in March, we've been climbing, but we still have yet to reach that 9,600 level we topped out at before the fall.
If these concepts of support and resistance are unfamiliar to you, be sure to read Understanding Support and Resistance.
So my rule is simple: I don't consider it a new uptrend to follow until we've clearly broken through that high-point of resistance. I drew a Fibonacci Retracement study on the chart below to illustrate this, but as you can see, we have a way to go before we get there.
You can learn more about Fibonacci Analysis here: Fibonacci Analysis For Stock Traders.
So call it what you will, but I'm not quite yet ready to call it a new bull market.
To see the rest of today's market videos and education, click here.
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