You already know the rule everybody uses.
Down 10% is a correction, down 20% is a bear market, rally 20% off the low and congratulations, you’re in a new bull market.
But here’s the thing few think about…
A 40% loss needs a 67% gain to break even.
And it’s why I want you to stop with the bull-bear BS.
True story…
Micron sold off 40% from its recent high. Bear market, by anybody’s definition.
Then that little monkey rallied 37%. New bull market, according to the rule.
Except then it sold back off about 12%, which drops it into correction territory again.
So that’s a bear market, a bull market and a correction inside one stretch of chart.
What did you learn about the stock?
Anything at all?
South Korea is worse. That crap got hammered.
The whole market went into a full-fledged horrendous bear market, down 35%, then put in a 40% gain off the low. Plenty of market technicians called that a new bull market.
It sold off another 9% the next day.
Now look at the prices sitting underneath those percentages, because this is where people get fooled.
South Korea went from 220 down to 140. Then it ran from 140 back to about 180, and everybody said we’re back, Mortimer.
Is 180 anywhere near 220?
Those two percentages get measured off two completely different starting points.
That’s how a 35% loss and a 40% gain end up looking like they cancel out when they don’t come close.
So instead of arguing about labels, I ask one question. Did the downtrend break?
On South Korea, I don’t think we ever left the downtrend. That bid off the lows was a rip your face off rally with the government behind it, and I think you’re getting ready for another round.
Now, play around with this yourself…
Find the high, find the low, work out what it takes to get back, then ask whether anything about that trend has changed.
You’ll be surprised how often the answer is no while the headlines are telling you otherwise.
I stopped needing to know which one it is years ago.
I build every position knowing my worst case before I click, so it doesn’t matter to me what anybody wants to call the tape.
I’m walking through exactly how I do that live on Thursday at noon Eastern.
It’s free and one lucky person in the room is going to walk out with $2,000 for showing up.
→ Be Here!
To your success,
Don Kaufman
