Bear Market Rally: Why Some Things Never Change

The Bear Market rally in stocks continues. You'll find opposing opinions, of course. Some urge buying stocks. Prices have fallen. They're cheap (they say). Jump in.

It's not just contrarians or cranks who believe it's not the time to that, this Bear Market rally. Some, of course, think they can "play" the rally. Indeed, skilled traders may do just that. As long as they know when to buy and when to sell, they'll make money. Good for them!

We who inhabit the slow-poke traders club room, though, will mostly stay away. Oh, we may dabble in energy stocks with the thought that the companies they represent are - to put it mildly - thriving as energy prices soar. (Yes, gas prices have declines; but it's likely not something that will last all that long.) But even there, the thought lingers that they'll likely get smacked if we hit a wall of cascading stock prices spurred by a burgeoning credit/liquidity crisis - the sort of condition where everything gets sold by the big boys who borrowed big time and who will then have to meet margin calls.

For the real sloths amongst us, simply staying put in cash might not be a bad idea.

At times like this we might wonder why some insist we're flipping back to a Bull Market so soon after a Bear Market has manifested itself so dramatically. We could simply say that some things never change. No matter the Bear, there always have been and likely always will be those who are pulled in to what some call a "Bear Trap." It's happened over and over again. Doesn't matter how many Bears come and go. 

Sometimes I wonder if the very same folks who stepped into the last Bear Trap do so yet again. That would an interesting bit of data, don't you think?

But even if the last batch learned a lesson they never forget, there are always more out there who will succumb to the rally the Bear throws at us to lure us in. And so it shall be this time.

That would explain how it's possible that Bear rallies succeed over and over again. It tells us why, in the case of Bear Market rallies, some things never change.

And yet, I wonder if that's a sufficient explanation. I wonder if there aren't, in fact, some significant number serial suckers when it comes to Bear Market rallies. It shouldn't surprise us if there are. All we need do is look at the venerable "fear" and "greed" Yin-Yang of markets. 

Greed keeps some segment of folks coming back again and again for more, even in the face of a known Bear Market rally. They come back because they believe if they don't they'll somehow miss out. They can't stand the idea that a couple of shekels might be missed. Greed compels them, pushes, even forces them to buy.

And it's the same with fear. When the losses first piled up in this Bear, fear took over from greed - at least for a spell. Some say there's still more fear than greed out there still. Will that fear persist if this rally ramps up even more than it already has? Don't be surprised if the fearful flip to greed.

If emotions drive your decisions, you won't be surprised. Having been pushed and pulled by this or that emotion, you know all too well how that goes.

Ironically, if that does happen - if the fearful slip back to being greedy, it'll be powerful evidence that this Bear has a lot more to go.

If you're wondering how we humans can manage to allow ourselves to be constantly and consistently gored by the twin horns of fear and greed, here's something written about 500 years ago. It's not talking about money or markets. It is talking about us. It's focus is on why, despite our knowing better, we still allow evil to get the upper hand.

"...the most calamitous condition of man, that he is so blinded by passion and cupidity as not to see that what he deems salutary generally contains a deadly poison, that he rushes headlong after those pernicious evils as if they were good and desirable, while those things which are really good and virtuous are shunned as the contrary. Of this false estimate and corrupt judgment of man God thus expresses His detestation: “Woe to you that call evil good, and good evil; that put darkness for light and light for darkness; that put bitter for sweet, and sweet for bitter.” (Is. 5.20)

Notice that it quotes Isaiah - a Book of the Bible. And that goes all the way back to around 700 years before Christ. That's a full 2,700+ years ago. And if I had to guess, if such records exist, we'd find consistency long before that.

If we can't resist what we know to be outright evil, what chance to we have against fear and greed when it comes to our money?

But before we let this go for now, a few paragraphs after the quote above, we find a comparison with children. When we allow such emotions to drive our decisions, when we allow evil into our souls to reek havoc, we're no better than children, in this sense:

"Another very apt comparison to denote the miserable condition of mankind is that wherein we are likened to children who, if left to go their own way, are thoughtlessly attracted by everything that presents itself. Truly we are children, thoughtless children, wholly devoted to vain conversations and frivolous actions, once we become destitute of divine assistance; and hence the reproof which divine wisdom directs against us: “O children, how long will you love childishness, and fools covet those things which are hurtful to themselves?” (Prov. 1.22) while the Apostle thus exhorts us: “Do not become children in sense.” (1 Cor. 14.20)"

But wait. It seems we supposedly mature adults take all this beyond simply being immature children: 

"Not only this, but our folly and blindness are even greater than those of children; for they are merely destitute of human prudence which they can of themselves acquire in course of time; whereas, if not assisted by God’s help and grace, we can never aspire to that divine prudence which is so necessary to salvation. And if God’s assistance should fail us, we at once cast aside those things that are truly good and rush headlong to voluntary ruin."

And don't let that last phrase escape your attention: "we at once cast aside those things that are truly good and rush headlong to voluntary ruin."

Ruin.

If you're feeling the tug of this Bear Market rally and you're not a skilled, experience trader who knows how to clip a quick prophet and prevent a steep loss, keep that word front and center of you brain: Ruin.