Profiting in Bull & Bear Markets - Stan Weinstein

1. 4 stages of a stock chart

   1. After a steep decline, the stock moves sideways as selling pressure fades and supply/demand reach balance. The 30-week moving average flattens, with the stock whipsawing around it, while volume declines early and later picks up as buyers cautiously return. This phase is recovery, not yet a buy point, and can last a long time before an uptrend begins.

   2. The strongest phase begins with a breakout above resistance on high volume, signaling institutional buying. The stock holds above rising 50-day, 200-day, and 30-week moving averages, forming higher highs and higher lows. Pullbacks are normal as long as the 50-day holds, making this the ideal time for investors to participate.

   3. Momentum slows as demand weakens and supply increases, leading to choppy sideways action. The stock often slices below the 10-week average on heavy volume, with failed breakout attempts and erratic swings. The 30-week and 200-day averages flatten, signaling that the strong uptrend is fading and risk of decline is rising.

   4. The stock breaks below support from Stage 3, beginning a series of lower highs and lower lows. It trades under long-term moving averages, which slope downward as weak rallies on light volume quickly fail. This phase can last months or years, and investors are advised to sell immediately and avoid trying to “catch the bottom.”

2. Presidential election cycle

   1. Most investors believe that if the Republican party is elected, the market tends to trend upwards, and the opposite for the Democrats. This is wrong. In fact, the Dow Jones has increased by more points after Democrats are elected compared to Republicans on average. Although some of this is due to greater inflation during Democratic time in office, this goes to show that it doesn't matter who is elected.

   2. The year following elections is usually a disaster. Most first years were bearish with a few exceptions. Usually, the second year will continue trending downwards until the bottom is created roughly midway through the year. The rest of year 2 is bullish and year 3 is usually the best. Year 4 is usually choppy.