The next time you hear someone talking about how “20% down is a bear market,” you know they’re either lying to you or they’re ignorant about how markets actually work.
It’s not about 20% corrections. That’s just a number made up by people who don’t actually put real money to work.
It’s about “polarity,” supply and demand, and support and resistance.
This is the biggest thing happening in markets right now.
I trust these three charts of the Dow, the Nasdaq, and the S&P more than everybody who keeps telling us the bull market is over.
They’re ignoring a basic lesson.
These three charts will tell us whether or not it’s over.
Bull or Bear
This morning I want to share the key signal you should keep front and center right now.
These charts literally define this bull market.
We call the behavior they show “polarity.” It’s when former resistance turns into support.
In other words, where there were more sellers than buyers – at the prior cycle’s peak – there are now (so far) more buyers than sellers.
You’re seeing this polarity play out in real time in the Dow, the Nasdaq, and the S&P.
Here are the Dow futures bouncing at the exact level where they topped back in early 2022:
The Nasdaq is showing the exact same phenomenon:
The S&P 500 futures too:
This is another lesson in Supply & Demand 101.
If all that former resistance does NOT turn into support, then the bull market is cancelled and this cycle is over.
That’s how I see it, anyway. I think it’s that simple.
I encourage you to go back and see for yourself: 20% means absolutely nothing.
It’s all about supply and demand – or “support” and “resistance,” as we like to call it.
If this polarity holds, then this bull cycle is still intact.
Before We Adjust
My friend Andrew Thrasher literally wrote the “book” on volatility.
It’s really an 11-page paper. But Andrew did win the 2017 Dow Award for Forecasting a Volatility Tsunami.
“Great importance is found in the study of market volatility,” Andrew writes, “due to the historically negative correlation the Volatility Index has had to U.S. equities.”
The VIX was built “to provide a tool to analyze ‘market anxiety’” and “to be used as an index that could be used to price futures and options contracts.”
That first part led to the “fear gauge” you see in so many narratives… including those about 20% corrections.
But it does have real use when it shows “such large and quick spikes as investor emotions flow through their trading terminals.”
And volatility reverts to its long-term average after periods of extreme volatility. It does not trend.
Volatility is a good indicator of changes in the market’s mood. It’s also helpful for risk-management.
This is the kind of environment when big changes happen. But we want to weigh all the evidence.
Volatility is part of that process. And, as I’ve said, “From volatility contraction tends to come expansion.”
Yesterday I also said I’d have more “on how we’ll adjust to a new regime, spot emerging patterns, and trade meaningful signals for big upside moves.”
We’re still ready to adjust. But it’s not time yet.
This polarity brings opportunities to profit from the long side. And that’s precisely what we’re doing.
I’ll have more on these opportunities soon.
And keep these three charts on your radar.
Stay sharp,
JC Parets, CMT
Founder, TrendLabs