A bear market rally will destroy your faith in stocks and investing. What is a bear market trap and how should you invest? Get all the stock market news, strategies and trends you need FREE with The Weekly Bow-Tie https://mystockmarketbasics.com/dailybowtie

We’ve been stuck in a cycle of bear market rallies all year, the ultimate market head fake where stocks start to recover only to fall back down into that longer-term bear market.

In this video, I’ll explain the bear market rally, show you what it is and how long they usually last. We’ll look at average time the market stays in a bull and bear market and what causes stocks to fall. I’ll then give you a complete plan for how to invest in a bear market, avoid these kinds of bear market traps and what to do.

Before that, so much of investing depends on your personal goals and portfolio. If you want to see how to analyze your own portfolio…check out this video! https://youtu.be/5p8Sl-JjQ3w

I want to start with the basics of a bull and bear market in stocks, what causes bear markets and how long they last. Then we’ll look at the bear market rally and how to invest without losing your money.

The technical definitions of a bull and bear market aren’t very helpful. A bull market is when stock prices are increasing over more than a few months while a bear market is any drop in a stock or the market of more than 20% from the peak. Looking at this research from Mackenzie Investments, we see there were 12 bull markets over the 60 years to 2020. On average, stocks jumped 129% from the low point to the bull market top and lasted about 54 months. There’s also been 12 bear markets of a 20% drop or more with stocks falling an average 28% when the bull stops charging and it’s taken an average of nine months from the peak in prices for the market to find a bottom.

A bear market rally, or bear trap, is a short-term rebound in stocks usually five- or ten-percent higher before the market starts falling again to reach lower lows.

So with the average length of the whole bear market around nine months, these bear traps usually average from two or three weeks to as long as a couple of months. And that’s what is so frustrating about these is some can last long enough to make you think we’re back in a bull market with stocks heading higher, only to fall back and lose more money. These bear market rallies are often caused by short-term oversold conditions and anxious investors still trying to buy the dip but before any real change in the fundamental market forces pushing stocks lower.

Basically, stocks fall so fast and investors get so negative that the market is like a coiled spring, ready to bounce back higher. Prices head higher for a day or two on that relief rally, investor sentiment improves as more investors try to buy in on the rebound and you get a bounce of five or ten percent.

The problem is, nothing has really changed in the market or the economy. The bigger picture that was forcing stocks and investor sentiment lower is still firmly in focus; in this case interest rates that are likely to rise for another year, slowing the economy, and decades-high inflation that is starting to weigh on consumer spending.

So once the market lets off a little of that tension, stocks are no longer oversold, and some economic data is released to remind investors of those downward forces, the bear market takes over again and stocks hit new lows.

0:00 Bear Market Trap
1:06 What is a Bear Market?
2:00 How Long are Bear Markets?
2:23 What Causes Bear Markets and Recession
2:58 What is a Bear Market Rally?
3:56 What Causes a Bear Market Trap?
5:38 How to Invest in a Bear Market

My Investing Recommendations 📈

Check out the stock simulator and Get a FREE share of stock worth up to $1000 when you open a Webull investing account with a $100 deposit! 🤑 https://mystockmarketbasics.com/webull

📊 Download this Portfolio Tracker and Investing Spreadsheet! [Community Discount Code] https://mystockmarketbasics.com/spreadsheetdiscount

Free Webinar – Discover how to create a personal investing plan and beat your goals in less than an hour! I’m revealing the Goals-Based Investing Strategy I developed working private wealth management in this free webinar. Reserve your spot now! https://mystockmarketbasics.com/free-investing-webinar

SUBSCRIBE to create the financial future you deserve with videos on beating debt, making more money and making your money work for you. https://mystockmarketbasics.com/LetsTalkMoney

Joseph Hogue, CFA spent nearly a decade as an investment analyst for institutional firms and banks. He now helps people understand their financial lives through debt payoff strategies, investing and ways to save more money. He has appeared on Bloomberg and on sites like CNBC and Morningstar. He holds the Chartered Financial Analyst (CFA) designation and is a veteran of the Marine Corps.