I am summarizing it from the Technical Analysis book by Edwards and Magee.
3 Phases The Bear Market
1. Distribution Phase
– Starts from the later stage of the preceding Bull Market
– Farsighted investors sense the fact that business earnings have reached an abnormal height and unload their holdings at an increasing pace.
2. Panic Phase
– Buyers begin to thin out
– Sellers become more urgent
– Downard trend of prices suddenly accelerates into an almost vertical drop
– Volume mounts to climactic proportions
– There may be sideway movements after this and then…. the third phase begins
3. Final and ‘dump them’ phase
– More discouraged selling on those who have hold their ‘gems’ till the last or have bought it in the Panic Phase because it is cheap
– Business news now begins to deterriorate
– Downward movement is less rapid
– Better-grade stocks decline more gradually
– And it will be over before the last of the bear news is out
What do you think? Do you agree that we are now in Phase 2?
I have attached SPX chart to highlight the phases that I think we are in.