So, what does a bull market template look like?
The first phase of a bull market template is the accumulation of smart money buying into the asset
Then a trend emerges of higher highs and higher lows, which is the second phase.
Next, the third phase of a bull market template is called the shakeout, as the weaker hands get flushed out of their positions.
“The first phase of a bull market template is the accumulation of smart money buying into the asset”
WEALTH TRAINING COMPANY
Then there is renewed optimism, the fourth phase, as headline stories try to rationalize the rise in price.
The fifth phase of a bull market template is the bear trap as some investors start expressing concerns regarding the trajectory of rising prices.
So, prices fall and there is renewed optimism in the asset, which is phase six.
Phase seven of a bull market template is known as FOMO (the fear of missing out) draws more investors in to buy the asset, thereby driving prices even higher.
The euphoria phase, also known as the delusional phase, where prices are disconnected from the fundamentals and you start to hear things like this “is a new era of investing”, “this time is different” and “not all bull markets end in a bubble”.
Let’s apply the bull market template to a few examples of financial bubbles and then apply it to the bull market of 2020.
The NASDAQ 100 index chart going back to the 80s shows two major shakeouts in 1987 and 90.
“Phase seven of a bull market template is known as FOMO (the fear of missing out)”
WEALTH TRAINING COMPANY
Then tech stocks start to build in momentum at the beginning of the 90s as media starts talking about tech stocks. What then follows is a bear trap, almost a 30% drop as investors are concerned about overvaluation, which was the case in 1998.
From the bottom of that correction is the delusion renewed optimism from 1998 to 2000 value of tech stocks which saw stocks shoot up 360% in just under two years that is delusional.
“Cisco stock went up over 700%, Intel went up 350% in the delusional period” – Wealth Training Company
The bubble popped from the top down the bottom 83%, which is a typical percentage bubble you see after the bubble has burst.
Cisco stock went up over 700%, Intel went up 350% in the delusional period. Qualcomm went up a massive 4000%. These were companies with big market capitalization, similar to Amazon, Face book and Tesla today.
The silver bubble started in 2001, the accumulation phase 1998 to 200, first very steep sell-off 2004 then momentum builds with the media from 2005 to 2006. The bear trap plays out 2007-2008, then the famous delusion.
The bull market template represents investor psychology
The bull market that we have today, 2020 the S&P 500, accumulation smart money gets in at the bottom of 2009 when the stock market is undervalued, then initial shakeout. 2011 headlines write about a double-dip recession, momentum phase 2012 to 2015, then the bear trap 2016 PE ration already high then the delusion phase.
So, what will drive this phase, the idea that the Fed will never let the market go down? That valuation in stock doesn’t matter anymore.
During the euphoria phase, most investors are bullish, it is a bubble that will try and trap max investors at the top.