The question on most investor's minds is, how do we know when the bull market has returned?  A quote from William J. O'Neil's book, "How to Make Money in Stocks", is most revealing.  O'Neil, the founder of Investors Business Daily, says:

"Watch for the first time an attempted short term rally follows through on anywhere from its third to tenth day of recovery.  The first and second days of an attempted improvement can't really tell you if the market has really turned on, so I ignore them and concentrate on the follow-through days of the rally.  The type of action to be looked for after the first few days of revival is an increase in total market volume from the day before, with substantial net price progress for the day up 1% or more on the Dow Jones or S&P Index."

So given that Tuesday of this week was the big rally day, today (Friday) is day number four of that sequence, and we can watch for the volume and price action in the next few days to see how O'Neil's theory plays out.

Watching CNBC on Tuesday morning, I really had the feeling that the anchors, especially Mark Haines, were trying their best to make everyone believe that the bear market was over, simply because we had a one day rally.  It's hard to blame them for having a bit of glee after watching the Nasdaq fall 12 of the previous 14 days, but their zeal came across as silly, and felt like cheerleading.  You could hear their despair on Wednesday, when the market held only a modest gain and it was glumly noted that the volume on the bank stocks had increased on the pull back from the highs of the morning.  Yes, Santa Claus had come with gifts on Tuesday, but now it was Wednesday, and some bubble headed adult was telling the little children that Santa doesn't really exist.
 

Trader thanks Santa for bringing Wall Street a huge rally on Tuesday...




but then reality sets in on Wednesday...
 

Then Wednesday afternoon, I'm outside talking to my neighbor and she tells me that she and her husband have to put their retirement on hold because their 401k has been cut in half.  When you are 30 years old and this happens, you simply continue to add money to the 401k so that over time the investments you make when stocks are cheap will eventually bear fruit and even out losses from the shares you bought at higher levels.  But my neighbor, whom I would guess is nearing 60, no longer has the luxury of waiting it out over the long term.  I find myself telling her that millions of American baby boomers are in the same position, but my words understandably don't seem to offer her much comfort.  

This morning I read where Warren Buffett has lost 25 billion dollars in this bear market!  Can you even imagine that?  I wonder what he tells his wife when he goes home?  "Uh, dear, I'm afraid I have a bit of bad news.  You are going to have to cancel the new drapes you ordered..."  Well, we all know what can happen when you disappoint the wife!

 

Don't ever tell your wife to cancel the drapes!
 

So for now I am content to hedge my accounts and wait for the bear to give way to the next bull.  It's comforting to hear the various technical analysts and others parade across my television and tell me that the bear is on his last legs, but somehow I remain skeptical.  There's just too much going on in Washington that is contributing to the bear market, too many people still losing their jobs, and too many houses still sitting unsold for me to really be confident.  On the other hand, we know that Wall Street always looks ahead 6-12 months, so it's likely that the world will still seem like a dismal place when the next bull market does begin. 

And that's no bull!!!
 

And now it's your turn.  Tycoon readers, how long until this bear market gives way to the bull again?  A week?  A month?  A year?  Five years?  As always, I would love to hear your thoughts.

See you next week!