Bull Market or Bear Market? Key Indicators to Watch

Understanding Bull Market and Bear Market Basics

Before you dive into signals and data, nail down the core definitions. A bull market is a prolonged period of rising asset prices—typically 20 % or more off a prior low—driven by expanding economic activity and optimism. A bear market is the opposite: prices fall 20 % or more from recent highs, often amid recession fears, tightening liquidity, or eroding profits. Knowing which side of the economic cycle you’re in sets the stage for interpreting every other metric.

Core Stock Market Trends and Economic Cycles

Equities don’t move in a vacuum. Classic economic‑cycle theory—expansion, peak, contraction, trough—still frames long‑run stock market trends. During expansions, unemployment falls, industrial production climbs, and consumer spending powers bull market indicators. In contractions, shrinking GDP, softer retail sales, and inventory gluts often precede or accompany bear market indicators. Watch:

Deep dive:
– Duration matters: The average U.S. expansion since 1945 lasts ~67 months, but bull markets can outrun the macro cycle when fiscal or monetary stimulus remains aggressive.
– Lead–lag relationships: Equities usually peak 6–12 months before a recession starts and bottom 3–6 months before it ends.

Market Volatility Indicators: VIX, Volatility Term Structure & Cross‑Asset Links

Volatility is fear made visible. The CBOE Volatility Index (VIX) tracks S&P 500 option prices; spikes above ~30 frequently coincide with corrections or early‑stage bears. But digging deeper adds context:

1. Volatility Term Structure
   • Contango vs. Backwardation: In healthy markets the VIX futures curve is upward‑sloping (contango) as distant‑month risk is priced higher. When the curve inverts (backwardation) for >5 trading days, it often marks an ongoing bear trend or liquidity crunch.
2. VVIX (Vol‑of‑Vol)
   • If VVIX jumps disproportionately to VIX (e.g., VVIX/VIX ratio >6), it signals demand for tail‑risk hedges—effectively a meta‑panic indicator.
3. Cross‑Asset Volatility Spreads
   • MOVE Index (Treasury vol) vs. VIX: A MOVE surge that leads VIX by 2–3 weeks implies credit stress that can spill into equities.
4. Realized vs. Implied Volatility
   • A 30‑day realized vol persistently implied usually occurs mid‑bear.

Actionable takeaway: Combine spot VIX level, futures term structure, and VVIX to separate temporary shakeouts from regime‑shifting bear moves.

Investor Sentiment Indicators: Consumer Confidence Index & Market Psychology

Sentiment can flip before price. Key gauges include:

Deep dive:
– Dumb Money/Smart Money Confidence (SentimenTrader) splits indicators by cohort. Divergences—retail euphoric while institutions hoard cash—are powerful bear setups.
– Twitter/X Sentiment: Real‑time NLP on market tweets increasingly predicts intraday volatility spikes.

Corporate Earnings Reports & Credit Market Conditions

Fundamentals ultimately anchor price. Expand beyond headline EPS:

Earnings Quality Metrics

1. Accrual Ratio (operating cash flow / net income). Rising accruals signal aggressive accounting and future reversals.
2. Gross‑Profit‑to‑Asset Ratio: A decline across sectors can precede margin compression typical in bear phases.
3. Earnings‑Guidance Spread: Track the number of S&P 500 companies raising vs. cutting guidance each season. A negative spread for two consecutive quarters frequently aligns with ~10 % further downside in the index.

Credit Health Gauges

Deep dive:
– Syndicated‑loan covenant‑lite share: When >80 % of new issuance is covenant‑lite, it often precedes tighter credit and bear risk within 12–18 months.
– Shadow‑bank spreads (private credit funds vs. HY): A sudden jump suggests systemic funding cracks not yet visible in public markets.

Comprehensive Bear Market Indicators Checklist

Beyond single metrics, look for clusters:

1. Technical Breadth: NYSE new lows > new highs for 40 of 50 trading days.
2. Index Structure: S&P 500 trading below its 200‑day moving average (DMA) for >100 sessions and 50‑DMA
3. Labor: 4‑week moving average of initial jobless claims rising >15 % YoY.
4. Manufacturing: ISM Manufacturing PMI new‑orders sub‑index
5. Liquidity: Real M2 growth negative YoY for 6+ months.
6. Credit Default Swaps: IG CDX index >100 bp—signaling broad default fears.

Use at least three concurrent signals to reduce false positives.

Hallmarks of Robust Bull Market Indicators

1. Breadth Thrusts: A 10‑day advance/decline up‑volume ratio >1.9 triggered only 24 times since 1940; 23 saw the S&P 500 higher 12 months later.
2. Earnings Breadth: Percentage of S&P 500 stocks with quarterly EPS beats >70 %.
3. Credit Confirmation: HY OAS compresses alongside equities (“risk‑on” correlation) rather than diverging.
4. Low‑Vol Leadership: Early bull phases often see defensive sectors underperform as risk appetite broadens.
5. IPO & M&A Window: Proceeds above the 5‑year average but
6. Yield‑Curve Re‑Steepening: 2‑year/10‑year spread widens back >50 bp after inversion.

Crypto Market Indicators: On‑Chain & Derivatives Nuances

Digital assets add idiosyncratic gauges:

Deep dive:
– HODL Wave: An increasing share of coins dormant for >1 year historically precedes major bull runs as speculative supply dries up. – Options Skew: BTC 25‑delta risk‑reversal turning negative (puts pricier than calls) during price climbs can signal caution—mirrors equity‑market hedging.

Synthesizing Signals: A Practical Framework

Because no single gauge is perfect, overlay multiple dimensions:

1. Macro & Credit: Track PMI and credit spreads weekly.
2. Price & Volatility: Monitor VIX term structure and moving averages daily.
3. Sentiment: Review AAII, put/call, and Google Trends for “recession” and “bear market” every Friday.
4. Fundamentals: Update EPS breadth and guidance spread each earnings season.
5. Crypto: If holding digital assets, set alerts for MVRV crossing ±3 and funding rates beyond ±0.05 %.

Scoring Model (example)
Assign +1 for bull signal, −1 for bear across 10 chosen indicators.
– +5 to +10 → Strong Bull
– 0 to +4 → Neutral/Range
– −1 to −4 → Caution
– −5 to −10 → Strong Bear

Back‑tests show composite models reduce whipsaws and improve risk‑adjusted returns vs. relying on any single metric.

Conclusion

Spotting a new bull market or confirming a bear market is less about a single lightning‑bolt signal and more about aligning multiple indicators across sentiment, fundamentals, credit, and price. Keep this toolkit handy, stay disciplined, and remember: markets are forward‑looking. By the time headlines scream “bull” or “bear,” the smart money is already positioned.