Mark offers some very nice stuff in the below post, but one aspect bought about vehement disagreement from me (though I'll bet that we're not as far apart as that disagreement might make it look). Mark says,
"Do I actually need to know if this is a bull or bear market?
Is it helpful? - we can argue definitions but most people accept 20% drop as bear, but then, what turns that bear into a 'new bull' get more subjective - shouldn't it be a 20% rise for symmetry?
Personally I use different math - which I'm not going to say - doesn't matter but if someone tells me 'we are a new bull market' they need to give their math - 20% rise, a rise above 200 dma , a higher low/higher high etc ...
But again - does it actually help? I have concluded it doesn't, even though I myself say these things!"
Now, in my work, one of the most valuable things I've learned is the importance of knowing if we're in a Bull or Bear market--or (and this is really important) rather if the market is TRADING LIKE a Bull or Bear market. Which, much like Mark, makes my approach no so much about predicting what the market is going to do. If I know that the market is trading like a Bear and likely to continue to do so for a time, it might be likely to go down 8% or 50% and knowing that it's a Bear tells me nothing about how bad.
What knowing it's a Bear market tells me is that a lot of things that worked like GOLD in a Bull market condition are going to fail in a Bear Market condition. Not knowing this is what drove Trader Nick (one of the best stock pickers/traders I've ever known) out of the business. Same with the highly successful hedge fund manager who came up with and used the approach that I now use in one of my models. As has been said many times before, CONTEXT MATTERS.
Now, I have a hard and fast indicator set that will reliably (but not perfectly) tell me that we're in a Bull or Bear market condition, and its pretty good, though it's slower than I'd like. Still very useful, but occasionally late to the party. With my advancing aged and increasing experience, though, I have been able to ascertain certain objective and subjective signs of a changed market condition well in advance of hard and fast objective indicator confirmation. I find this helpful too, at least at keeping me out of trouble.
So, real world application, some time back I started talking about the market being technically in a Bear market condition, but trading more like a Bull. This had me hold off selling longs when the VIX finally went to an IT Sell, because in a Bull Market condition (or a market that is trading like one), the top spotters and IT Sell signals tend to be early, or at least are followed by a head-fake rally to shake loose the early Bears. And, thankfully, that was the right call and we got a decent exit. This also has me thinking that we are just experiencing a correction, not a continuation of the Bear. Of course, this could change, but SO FAR, it hasn't.
I'll also note that should the market come on this week into Friday, we very likely could go into a full on objective Bull Market condition (which is NOT a Buy signal).