Don't Wait Around for an "Official" Bear Market

It's finally caught up to me... I'm at home, sick in bed - sick from too much travelling, on too many planes.

That said, I'm in good company. I think I feel exactly how the market does. Heaven knows it's been up and down enough, too, which would give anybody a headache and weaken their stomach.

In its rapid and flighty ups and downs, its immune system has been compromised, and it's sick, too.

The leadership stocks are all in trouble. In fact, there is no leadership.

Politics - domestic and international - are weighing on markets. Every day, more "news flow" weakens the aging bull market. Call it headline risk.

Now, something like half of S&P 500 stocks are in a bear market. The broader market, not so much. And the truth is, we may not get there.

But I'll let you in on a little "pro" secret about bear markets - one you won't hear on television.

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Stay Put... and You Risk Missing the Profit Trend

The "official," "classic," "textbook" - whatever you want to call it - definition of a bear market holds that stocks, bonds, oil, coffee - whatever - has to have declined by at least 20% from peaks for at least two months.

Here's the problem with that, though. A really big one: If you stick around waiting for a 20% plunge before you change your moneymaking tactics, you'll wake up to find your portfolio on life support.

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I'm talking critical condition, here. Even worse than I feel right now.

So, even though from a technical perspective we may not ever enter "official" bear market territory, smart traders and investors will make moves based on the trend - that is to say, the path of least resistance - that market psychology "wants" to take.

And right now, that path is headed due south. Straight down. Doesn't it "feel" like this market is sick enough to be brought to its knees and thrown into bed for a while?

It'd be terrible mistake to try and fight this trend, so it's going to pay to be bearish right now.

To be sure, I'm seeing some bullish signals here and there, and we may yet see some stocks catch the bid as prices become too good to pass up, but overwhelmingly, stocks want to go lower.

In my Money Zone trading research service, for instance, we're making beaucoup bearish bets - like puts on the PowerShares QQQ Trust (NASDAQ: QQQ), which tracks daily NASDAQ moves. I expect we'll clean up there. That makes a great hedge against downward moves, too.

Until prices and sentiment show me otherwise, the old bull market is a dead duck. The bears have the upper hand, and I'm going back to bed.

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About the Author

Shah Gilani boasts a financial pedigree unlike any other. He ran his first hedge fund in 1982 from his seat on the floor of the Chicago Board of Options Exchange. When options on the Standard & Poor's 100 began trading on March 11, 1983, Shah worked in "the pit" as a market maker.

The work he did laid the foundation for what would later become the VIX - to this day one of the most widely used indicators worldwide. After leaving Chicago to run the futures and options division of the British banking giant Lloyd's TSB, Shah moved up to Roosevelt & Cross Inc., an old-line New York boutique firm. There he originated and ran a packaged fixed-income trading desk, and established that company's "listed" and OTC trading desks.

Shah founded a second hedge fund in 1999, which he ran until 2003.

Shah's vast network of contacts includes the biggest players on Wall Street and in international finance. These contacts give him the real story - when others only get what the investment banks want them to see.

Today, as editor of Hyperdrive Portfolio, Shah presents his legion of subscribers with massive profit opportunities that result from paradigm shifts in the way we work, play, and live.

Shah is a frequent guest on CNBC, Forbes, and MarketWatch, and you can catch him every week on Fox Business's Varney & Co.

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