Ask Your Portfolio Manager: What Are You Going to Do in the Next Bear Market?

Adam Sarhan  |

Stocks Mauled On Global Recession Fears

Markets across the globe plunged last week, reiterating our cautious stance. As a quick refresher, we first turned cautious last summer - BEFORE the big crash in Aug 2015, and have been very selective since. Thankfully, we entered the year with a very strong cautious stance, and's Model Portfolio actually locked in profits. The portfolio is now in cash, while the market has plunged. The fact that sellers continue to relentlessly sell nearly everything they can get their hands on clearly shows you that we are in the early stages of a new bear market for stocks, and a global recession is imminent. Several important areas of the market are already in a bear market (defined by a decline of 20% or more from a recent high) which means it is just a matter of time until the major indices play catch up to the downside. These are some of the important areas that are already in bear market territory: Commodities, The Small Cap Russell 2000 ($IWM), Transports (IYT), Biotechs (IBB), Retail (XRT), Junk Bonds (JNK), Materials (XLB). In the short term, the markets remain deeply oversold and way overdue to bounce. The fact that they can't bounce speaks volumes to how weak the market is right now.

Monday-Wednesday's Action: Sellers Shows Up With A Vengeance

Stocks traded all over the map on Monday. Overnight, Chinese stocks plunged another 5.00% which was not ideal. US stocks opened higher but quickly turned negative after new sellers showed up and distributed stock. Crude oil plunged over 6% and hit the lowest level since 2003! Copper prices plunged to a fresh 6 year low which illustrates the market's concern about weaker global demand. The JP Morgan (JPM) health care conference started which is the biggest health care conference of the year. Biotech stocks (IBB) fell over 4.00% and took out September's 2015's low which is not ideal for the bulls. In M&A news, Shire (SHPG) said it will acquire drug maker Baxalta (BXLT) for $32 billion in cash and stock. Stocks ended higher after vacillating between positive and negative territory on Tuesday as oil prices traded all over the map. In the morning, oil prices were up nicely but turned negative and actually fell below $30 a barrel for the first time in 12 years! Stocks turned higher after oil prices stopped falling. Stocks are trying to bounce from deeply oversold levels.

The inability for stocks to bounce speaks volumes at how weak the market is right now. Stocks plunged on Wednesday as a new round of selling hit Wall Street. This time the bears went after almost all areas of the market including the big glamour names such as (AMZN) and Netflix (NFLX) that had been holding up rather well in late 2015. The fact that Wall Street can not bounce from deeply oversold levels clearly illustrates how weak the market is right now.

Thursday-Friday's Action: Stocks Can't Bounce From Deeply Oversold Levels

The long overdue pullback finally arrived on Thursday after the S&P 500 came within a few points of "retesting" Aug and September 2015's low. The S&P 500 actually turned higher for the week which is a strong defensive stance in the near term. Several high beta stocks bounced after big investors showed up and defended their longer term 200 DMA lines ((FB), (HD), (NFLX), just to name a few). The market is way overdue to bounce and the key now is to analyze the health of this bounce to see it it lasts more than a few days. That didn't last long. Stocks fell hard on Friday as oil prices plunged nearly 5.00%. The fact that they can't bounce from deeply oversold levels shows you how weak the market is right now. Stocks will be closed on Mondayfor the holiday but markets overseas will be open.

Market Outlook: A Big Top

From where we sit, this aging bull market is over or on its last breath. The last two major bull markets ended shortly after their 5th anniversary; 1994-2000 & 2002-Oct 2007. As always, keep your losses small and never argue with the tape. If you want exact entry and exit points in leading stocks, or access more of Adam's commentary/thoughts on the market, consider joining

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to:


Symbol Name Price Change % Volume
FB Facebook Inc. 131.55 -7.98 -5.72 44,432,890 Trade
BXLT Baxalta Incorporated n/a n/a n/a 0 Trade
JPM JP Morgan Chase & Co. 110.83 0.84 0.76 13,987,046 Trade
AMZN Inc. 1,512.29 -81.12 -5.09 7,818,850 Trade
HD Home Depot Inc. (The) 173.59 -3.43 -1.94 6,203,656 Trade
NFLX Netflix Inc. 270.60 -15.61 -5.45 13,030,884 Trade
SHPG Shire plc 175.60 0.01 0.01 2,167,190 Trade


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