We have technically entered a bear market as defined by most leading chartists.  The criteria of a bear market is when the indices are trading below both their 50 day moving average and 200 day moving average AND the 50 day moving average has crossed down beneath the 200 day moving average.

All the major indices are now in bear market territory.

But stocks don’t go straight down right?  Absolutely not!  Some of the best rallies occur during bear markets. But with extreme fear and volatility being every day occurences over the past few weeks, when is a good time to dip your toe in the water and buy?

Major Chart Patterns Repeat

To answer the above questions, we need to look back at late 2007, early 2008 at a very similar time in terms of how the charts look.  In early 2008 (see chart) the 200 day moving average (blue line) crossed below the 200 day moving average (red line).  Also (and very key), the 200 day moving average changed from an upsloping line, to a flat line.  This is EXACTLY the pattern we have in the SPY right now.

13 DAY EMA METHOD

The trading method involves the 13 day EMA.  You can buy stocks for a position trade (several days to several weeks in duration) when the 13 day EMA (green line) changes from a downward slant to an upward slant, AND the stock is trading above it.

In the chart shown, obviously we were in a vicious bear market and most money was made on the short side.  However, if you would have bought stocks using the 13 day EMA method, you would have made money each time.