When bull markets, bear markets are discussed in context of fundamentals, what should be discussed are the big macro ideas and situation. This can largely be done quickly in a chart based format. These macros tend to move slowly, thereby (generally) providing plenty of time to prepare. The issue is more about being early than late.
One of the above is of course the Central Banks. Central Banks are political. Their monetary policies lead the political agenda of the current regime.
Markets will often adjust before Central Banks adjust monetary policy, particularly very large players who require lots of liquidity to enter/exit. Their footprints are seen in advance/decline charts.
The Bond market will usually lead stocks, starting with long duration end of the curve. Yield curves are important information as are credit spreads.
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The issue with credit spreads is that it signals a contraction of liquidity. Markets of today, more than yesteryear are 'X' times more susceptible to contracting liquidity. This is because the derivatives markets are so much larger. The current derivatives market is $1.4Quadrillion in size. Of that number close to 60% are SWAPS. SWAPS are private market, unregulated, blind, contracts that settle in CASH. Given that the base money supply M2 is a fraction of the derivative market, never mind the cash requirements of everything else, and you can see it doesn't take much for a credit crunch to morph into a liquidity event.
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Currently the commercial banks are seeking to earn a pittance on overnight loans to the Fed. That is now $2T/night. Banks are holding or hoarding cash. Why? Because as the Fed shrinks its Balance Sheet, cash will become the only thing that protects them from a liquidity event...and the Fed steps back in. Or not, think LEH.
Another way of looking at liquidity is demand for the dollar:
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This bear for stocks only changes when the Fed capitulates and adds back (huge) liquidity. The issue then becomes a dollar survival issue.
The point being: to call big stock market conditions (bull/bear) requires looking not only at the stock market. Currencies, interest rates (credit spreads) commodities (inflation) and bond markets are all necessary inputs.
Then look at the major segments of the market. Financials are a good one. You can never have a bull market unless the financials come to the party. Also, conversely, when the financials (banks etc) are weak, the market is weak.
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The writing was on the wall at the start of the year. This next chart echoes what
@peter2 and
@Skate have been saying about relative strength, just on a macro level:
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You can also look at discretionary v staples.
Currently we have another bear market rally. It will fail by the end of next week.
Why?
Because the Fed is still hawkish in their rhetoric. Until that changes, markets remain in bear mode as the Fed reduces liquidity. When they trigger the liquidity event and markets shed another 40%+, they will (late again) try to salvage the crisis. They are a 1 trick pony. Flood the markets with liquidity. That has been their only policy response since Greenspan in 1987.
jog on
duc