Having a bull mindset in a bear market is not profitable. Bear markets have no long term support, they can make lower lows for a long time. Buying pullbacks is not profitable in bear markets because pullbacks turn into downtrends, and old support becomes the new resistance.
- Buying dips stops working. Bulls end up getting trapped at higher price levels, unable to profit from rebounds because they are waiting to break even.
- Momentum entries fail to be profitable. Rallies are usually chances for shareholders at higher prices to sell their shares and short sellers to take new, short positions.
- Perma-bulls confuse short covering rallies for bounces off a bottom. They are dead cat bounces that will later make lower lows.
- Perma-bulls stay long into 10% corrections and think the sell-off is over, but end up staying long through the 20% upcoming bear market.
- The perma-bulls fail to understand that when equities are under distribution, all stocks go down regardless of the underlying business and fundamentals.
- Stock markets go down when the majority is primarily long and the market runs out of new buyers.
- 10% corrections and 20% pullbacks into bull markets are normal; 2012 – 2015 price action is abnormal.
- All markets can trend in two different directions; you must stay flexible. Perma-bulls only think that stocks will go higher.
- Margin debt and leverage are great vehicles for creating bubbles, but they have their limits.
- The central bank can create bubbles, but they can’t sustain them forever.