Making money in the coming bear market

It’s all starting to feel like very familiar territory now…

Nothing financially bad can happen again. The stock market feels nice and cozy. People keep making money. What’s not to like when asset prices can only go one way?

This is what it felt like in March 2000 before the dot coms turned south. It was what it felt like in October 2007 before the S&P crashed.

And that’s what has me a little concerned. The warning signs are starting to pile up.

no fear here

The Bloomberg headline said it all: “Retail Investors Just Take Historic Step Into US Stocks.”

TD Ameritrade’s proprietary measure of investor sentiment, culled from analysis of trading activity and client accounts, hit an all-time high — “the largest single-month rise in history,” and chief market strategist The brokerage took note with this understatement: “The retail investor has become a bit more of a believer.”

Another sign appeared on CNBC a few weeks ago with the headline “There is no fear here.” An E-Trade survey of its clients hit a bullish extreme, with a record 71% of its high net worth individuals (those with $1 million or more in their accounts) expecting the fourth quarter to end higher than expected. began. Clearly, the expectation among them is to continue to make money by being long the market.

What about the so-called “smart money”?

They are taking money off the table and sounding the alarm:

• Bank of America Merrill Lynch recently said in a bearish cautionary note: “Investors no longer fear risk, they love it.”

• Carl Icahn stated, “I really think that although the earnings are going to be very good… I think this has gone into a state of euphoria.”

• Goldman Sachs notes that valuations in almost all market classes are at their highest level in 117 years.

On top of all that, the stock market experienced something on December 4th that it hadn’t seen in many, many months: an old-fashioned “pop and drop” trading session.

The “pop” was at the beginning of the trading session. All the major indices, such as the S&P 500, opened strongly higher at new all-time intraday records.

The “drop” began 15 minutes after the opening bell, with a large volume drop that persisted throughout the day, until the end of the session.

The point is, it’s not a bad idea to get some proverbial money off the table, at least.

This trade has not worked in a long time. But given the current extremes, in my opinion, you have a good chance of making money now.