The Making of a Bull Market, Part 1

Below is a 4 series article discussing the common themes that leads to a market transition between bull-to-bear and vice versa written by trader/teacher Larry Connors which have been originally published on 5/27/2010 at tradingmarkets.com. You can find the original articles in its entirety here.

Bull Market image from Vanderbuilt Business, Spring 2011

As I mentioned yesterday, this officially makes the 8th bear market I've traded through since coming into to the industry in 1981. Each market had its own reasons for heading into a bear market, but each had common themes when they transitioned into a bull market. Today and Monday I'll share with you these common themes which hopefully you can apply both to this market and to future bear-to-bull market transitions.

Today we'll look at 8 common themes and on Monday the why's behind these 8 common themes.

1. There is no rational economic reason for the early rally.

2. The semi's lead first.

3. Every bear to bull transition is accompanied by the financials. If the financials don't rally, there is no bull market.

4. Basic Materials usually lead too. If there is no building, there is no recovery.

5. The market pounces on any good news and shrugs off (ignores) bad news.

6. The market will gap lower and then close higher for the day. It will do this over and over again.

7. The last hour of trading is often accompanied by strong buying. This buying is usually caused by large money on the sidelines combined with panic short covering.

8. The U.S. market leads the other world markets higher. It always has and until proven otherwise, it will again this time.

If some of these things look familiar to you now, it should as this is what the last few weeks have looked like. But until the market breaks above the 200-day, I still define the market as being in a bear market and I'll trade it that way (it's the prudent, statistically proven thing to do as we've seen over the past 15 months). This bear market will eventually end, though, and as many of you who have been doing this for many years know, there are few things prettier in the business world than a new bull market.

To be continued...