PREPARENOWAND

SURVIVETHECOMING

BEARMARKET

ThisTimeisNotDifferent

ByMarkD.Cookand

MichaelSincereForewordbyJackSchwager

©2015PublishedbySincere

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Contents

TitlepageDedicationForewordIntroduction

PrepareNowandSurvivetheComingBearMarket

ConclusionAuthorBiographies

Acknowledgements

DedicationbyMarkD.Cook

Thisbookisdedicatedtomyson, Ryan J. Cook, for hisinspiration, research, andcommitment to the Cooktrading rules and principles.Without Ryan’s effort, input,and support, thisbookwould

nothavebeenpossible.

Forewordby Jack Schwager (author ofthebestsellingbooks,MarketWizards and Stock MarketWizards)

The first time I saw MarkCookhewasafellowspeakeratanindustryconference,andhemadeanimpressionbefore

he uttered a single word. Hecame up to the podiumdressed in bib overalls. Hedidthistomakeapointabouthis roots, but his choice ofdress was not merely show;therewasalsosubstancetoit.Even though he had mademillions trading, at the time,Cook continued to do somefarmworkhimself.Althoughit was difficult to justify hismanual labor in anyeconomic sense, Cook

rationalized his part-timefarm work, which was inaddition to the fifty to sixtyhoursperweekheputinasatrader, by saying that hewasaworkaholic.Thismayhavebeen true enough, but I alsobelieved that Cook wouldhavefeltatingeofguiltifhehadworked“only”asatraderwhile his then eighty-one-year-old father continued tofarmfull-time.

About a year later (1999), Icalled Cook to ask him toparticipate as an interviewsubject for my third MarketWizards book, Stock MarketWizards. He agreed and IflewouttoOhiotomeethim.I interviewed Cook over thecourseof twodays, spendingthe night as a guest on hisfarm.

WhileIwasthere,Cooktookme for a tour of the local

area. As we drove along,Cook pointed out varioustracts of land, which heidentified by a year number.“There’s 1997,” he said,referring to the farm he hadboughtwithhis 1997 tradingprofits. “There’s 1995,” hesaidafewmomentslater,andsoon.Heapparentlyhashada lot of good years. Cook isalmost zealous aboutconverting his trading profitsinto real assets—and for

Cookfarmlandistheultimaterealasset.

Cook’s early attempts attrading were marked bysetbacks. Cook didn’t justencounter initial failure, hefailed repeatedly andspectacularly, losing hisentire trading stake severaltimes, and on one occasion,more than his entire networth.Cook, however, nevergave up. Each failure only

made him work harder.Finally, after many years ofcarefully tracking the stockmarket, filling volumes ofmarket diaries, andassiduously recording andanalyzing every trade hemade, his trading becameconsistentlyprofitable.

OnceCookbecameconfidentin his trading abilities, heentered several marketcontests, registering an 89

percent gain in a four-monthcompetitionin1989,and563percent and 322 percentreturns in back-to-backannual contests beginning in1992. His annual returns inthe subsequent six years (thesix years prior to the year Iinterviewed him) rangedbetween 30 percent and astratospheric 1,422 percent.These statistics are based ondefining percent return asannual dollar profits divided

by beginning year equity, aconservative definition thatunderstates Cook’s trueperformance, because hefrequently withdraws profitsfrom his account but neveraddsfunds.

For example, in his low-return year (based on ourdefinition of percent return),his withdrawals during theyear exceeded his startingcapital. At the time of our

interview,Cookhadprovidedme with his accountstatementsforhismostrecentfour years. During thisperiod, he was profitable on87percentofalltradingdays,with one-third of themonthsshowingonlywinningdays.

I had interviewedCook onlymonths before the majorstock market peak in early2000. I contacted Cookseveral years later to get an

updatebeforethereleaseofapaperback version of StockMarket Wizards. Cook hadcontinued to roll along inhistrading. Given hismethodology, it makes nodifference to him whetherstocksareinabullmarketorabearmarket.

For comparison, though,during the April 2000 -September2002periodwhenthe S&P 500 declined by 45

percentandtheNasdaqby75percent, Cook’s tradingaccountrealizedacumulative114 percent profitcompounded (84 percent ifmeasured as cumulativedollars profit divided by theaverageaccountequitylevel).

When Cook contactedme towrite the foreword forPrepareNowandSurvivetheComing Bear Market, heexplained he was compelled

to write this eBook becauseof the opportunity he sawdeveloping in the markets.His key indicator, the CookCumulative Tick (CCT) wasscreaming that a major bearmarketwasimminent.Hehadseen similar situations threetimesbefore:1987,2000,and2008.

InspeakingtoCook,Isensedthat a keymotivation he hadforcomingoutwiththisbook

was that this time hewantedto be clearly on the recordwith his forecast. Cook pullsno punches in his bearishprognostication. Readers willneed to decide whether theyaccept Cook’s projection ornot,butgivenhispastrecord,his market views should notbe dismissed lightly. For therecord, I received Cook’smanuscript for review onOctober 3, 2014 when theDecember e-mini S&P

contracthadclosedat1961.Itwill be fascinating to seewhether Cook’s bold call isrealized by the ensuingmarketaction.

• This foreword has beenadapted from Stock MarketWizardsbyJackSchwager.

IntroductionbyMichaelSincere

Iwanttothankyoufortakingthe time to readmy in-depthinterview with Mark D.Cook. He is a recognizedstock and options traderwhocorrectly predicted the 1987,2000, and 2008 market

crashes,andalsowentlongin2009. That is why Iinterviewed him for thisbook.

Readers of my weekly blog(www.michaelsincere.com)or my columns atMarketWatch.comhaveheardmy warnings that the stockmarkethasreacheddangerouslevels.Igrewupwatchingthestock market and learned tostudyandanalyzeitforclues.

The market always providessigns of future direction, butyou have to know where tolook.MarkCook is someonewhoknowswheretolook.

Cookwas one of the first torecognize that the stockmarket was topping out inlate 2014 even as the majorindices hit all-timehighs.Hebased this conclusion on hisdecades-long study of theNew York Stock Exchange

(NYSE)Tick.Using thedatahe received, he created aproprietary indicator, theCook Cumulative Tick(CCT).

In this eBook, Cook helpsyou navigate through theminefields of a bear market.Many investors can profiteasily when stocks aresoaring,yetareoverwhelmedwhen they continuallydecline. Bear markets are

usually fast and vicious andcan crush the unwary trader.Yet Cook has profited morefrom bear market plungesthan bull market rallies, anaccomplishment few otherscanclaim.

Withhis38yearsexperience,Cook has not only survivedthreemajorbearmarkets,buthas amassed a fortune fromthem. In fact, he made themostmoneyduringthesebear

markets precisely becausetheyweresofastandvicious.Hewill share with youwhathehaslearnedasatrader.

Perhaps the most valuablesections of the interview arewhenheexplainsindetailthe11stepsofabearmarket.Byknowing how a bear marketunfolds, youwill knowwhatto look for to enhance yourtrading profits and minimizelosses. This should be

required reading for anytraderorinvestor.

It is also important toremember that the marketalways has the final word.While most investors hatebear markets, they are anaturalpartofmarketcycles.As long as there are stocks,therewillbebullmarketsandbear markets. Today is nodifferent. We can minimizemistakes by studying past

cycles, which is why wecreatedthisbook.

One last thing: You mightwonder why we created aneBook rather than atraditional hardcover orpaperback. The reason issimple. The market ischanging so fast that weneededtogetthisinformationout quickly. We hope youbenefitfromtheresults.

Okay, let’s get startedlearning about bear marketsfrom a master – Mark D.Cook.

MichaelSincereAuthor: UnderstandingOptions 2E (McGraw-Hill),Understanding Stocks 2E(McGraw-Hill), Predict theNextBullorBearMarketandWin (Adams Media), AllAbout Market Indicators(McGraw-Hill), and Start

Day Trading Now (AdamsMedia).

PREPARENOWAND

SURVIVETHECOMING

BEARMARKET

ThisTimeisNotDifferent

Sincere: Can you give us a

brief summary of yourbackground?Cook:IamMarkD.Cook,astockandoptionsandfuturestrader. I’m primarily knownfor being one of the MarketWizards thatwas included inJack Schwager’s book. I’malso the winner of the 1992U.S. InvestmentChampionship with a 563percentauditedannualreturn.

What do you think

investors are thinking rightnow?The perception amonginvestors and even traders isthat themarketonlygoesup.Itwilltakeamajorcorrectionfor people to change theirminds.

Do you see any dangersigns?I believe this stock markethas the potential to be theworstofall time.We’revery

closetoatop.I’mwaitingforthe shot across the bow thatsignalsacrackintheuptrend.

You make it sound likethere will be a horrificcorrection.Thereisnodoubtinmymindthat a massive correction iscoming,anditwillbegreaterthan 35 percent. It willsurprise everyone, includingthe masses. I am putting myreputation on the line to say

that. When it happens, thedevastation will hit quickly.It’sliketherealestatebubbleof 2006 and 2007 wherepeoplewere super leveraged,and it collapsed. We’re alsogoingtoseemargincallslikeyouwouldn’tbelieve.

What would be the worst-casescenario?The worst scenario is aprolonged bear market. Iknow we’re going to have a

bearmarketbutIdon’tknowits magnitude. It scares mehowbaditwillbe.Ofcoursewe will get the 20 percentcorrection. I just don’t knowfor sure how low themarketwillgo.After it hits,wewillhave a different kind ofmarket.Only the traderswillsurvive. Volatility is thetraders’ best friend, and wewillhavealotofit.

What happens to traders

during these low volatilityperiods?Because of the six-year bullmarket and the lack ofvolatility, many traders I’veknown have given up andquit. The Fed has chasedaway the traders.There isnoliquidityinthemarket.It’sallone-sided. The problem isthat a one-sided market is adouble-edged sword. Whatgoes up must come downeventually, and when the

market goes down, itwill behorrific. There will be nobids. It will be one-sided ontheshortside.

Ithoughtpeopledidn’tlikevolatility.Most people don’t, butvolatility is a neededcomponent of a free stockmarket. The public hasattached a bad stigma to theword, “volatility,” but that isbecause they are not

informed.Volatility does notmean bearmarket.You needvolatility in the market tokeep a bull market fromgetting overzealous.Volatilityisneededtocorrectthese distorted markets.Bottom line: Withoutvolatility, you end upwith avery dangerous overboughtmarket,ironically,thekindofmarketthatwehadinthelastquarterof2014.

What was so surprisingabout2014?In my 38 years of making aliving trading, I have seenextreme environments to thebullish and the bearish sides.In 2009, the satanic low of666 in the S&P 500 willremain in theannalsof stockfolklore for decades, if notlonger. That severe bearishenvironment destroyed lives,fortunes, companies, andconfidence in American

business.Andnow,afterfiveyears,wehavegonefromoneextremetoanother.AsIwritethis now, many investorsbelieve the stock market isinvincible. We have seenthese extremes before inmany commodity markets,bond markets, real estatemarkets, and equities. Tonavigate extreme conditions,Ipracticeone important rule:Keep It Simple, Stupid! Thebest market experts I have

known are tenacious, patient,andtheyhavekeptitsimple.

Why are you so sure thatthere will be a severecorrection?The numbers I’m seeing onmy CCT indicator are someof the worst I’ve seen since2007and2008.AlotofwhatI’m seeing doesn’t makesense. In 2014,wewent twoyearswithout a correction sothe bulls were happy and

complacent. They start tothink that is the norm. Thelongerwegowithouta10or20 percent correction, thegreater the next correctionwill be.Because of leverage,portfoliosaregoingtogethitharder.Inotherwords,ifyouget a 20 percent correction,portfolioswillgodownby30percentormore.

What do you mean by theCCTindicator?

Themain indicator Iuse isaproprietary indicator Ideveloped, the CookCumulativeTick (CCT).TheCCT, more than any otherindicator I have used, isreliable,timely,andcrucialtounderstandingthetruetapeofthe stockmarket. It has paidmybillsforover35years.The CCT is derived from

the New York StockExchange (NYSE) Tick, aleading indicator that gives

clues where the market isgoing to go next.TheNYSETick is the heart and soul ofthe market. It’s the trueinternals of the marketstructure.Ifyouhaveaweakstructure, the walls collapseundertheceiling.Basically, the NYSE Tick

gave me a snapshot of thebreadth of the market at anygiven time period. Keep inmindthatanyonecanlookuptheNYSETick.It’savailable

on any chart. But the CCTinvolves a lot ofwork.Mostpeopledon’twant totakethetimetowritedowneveryone-minute NYSE Tick tocalculate the CCT. Thereason it’s a cumulative tickis that the CCT is the sumtotal of the minus and plusNYSETicks.

How did you first developthe Cook Cumulative Tick(CCT)?

I started doing research onthe NYSE Tick in January1986. The information waseasilyavailablefromtheNewYorkStockExchange,whichposted the information on itsticker tape (that was beforewebsites). I discovered thattheNYSETickwasnoteasilyunderstood by the public, orevenbymostonWallStreet.I put the NYSE Tick on mymonitorandwatcheditdaily.The CCT is an advance

indicator of future pricemovements for the short andlongterm.WhenIdiscoveredthe CCT in 1986, at first Ididn’t know what thenumbers meant. By 1987,before the crash, I knewexactly what it was tellingme.

What is the differencebetweentheNYSETickandyourindicator,theCCT?The only difference is that I

count every one of thosecumulative bars. If someoneiswillingtotakethetimeandaddupalloftheNYSETicks,they could do what I’mdoing. But you have to lookat it over a long timeperiod,notjustoneday.Onedayandoneweek isn’t enough togeta reading. It’s amonths longchart.Justtogiveyouanidea,on

a one-minute chart, there are390 individual ticks. I record

those ticks every day. Ifyou’renotwillingtodowhatIdo, thenyou’llhaveto takewhatIseeatfacevalue.

How can someone read theNYSETick?The NYSE Tick is a quotethat is generated throughoutthetradingday.First,anyonecanviewtheNYSETickonachartoranyplatformthathasquotes.Onmanysystems,theNYSE Tick symbol is

$TICK, but it may varydepending on the brokeragefirm.Ilookata1-minutebarchart. Everyone should havetheNYSETick displayed ontheirscreen.Ibelieveit’soneof the greatest tools evercreated, which is why I usethedatafromtheNYSETicktocreatetheCCT.

What information does theNYSETickgiveyou?The tick is a speed and

horsepower indicator. Thegreater the speed, the greaterthe horsepower expended.Therefore, if a large numberof individual stocks areprinting a price higher thanthepreviousprint, theNYSEwill register a high plusnumber. Conversely, if alarge number of individualstocksprintalowerpricethanthepreviousprint, theNYSETick will register a highminus number. No other

indicator has provided mewith more accurate guidancethantheNYSETick.Itgivesan accurate, precise, and anincrediblyhelpfulinsightintotheinternalsofthemarket.In a normal market

environment,when you havean uptrend, you will have aplus tick. The greater thestock prices, the greater theplus tick. Ifyouhaveahugeuptrendday,whichIconsidertobe1percentorgreater,you

willseealotofinstancesofaprolonged plus tick. In anordinary environment, whenthe market is rallying for along time period, the NYSETick accelerates and expandsin conjunction with stockprices.Simplyput,aplustickequalsplusstockprices.If there is a huge uptrend

day,youmight see a readingof plus (+) 1000 or greater.Therefore, if theNYSETickis registering a plus 1000 or

greater, at that particularinstance, there are 1000stocksprintingahigherpricethan they did previously onthe last executed print. It’sjust the opposite when thetickisminus1000orgreater.By the way, those plus

1000 days are rare butmeaningful. It’s like theaccelerator is pressed to thefloorandthehorsepowerandacceleration make the pricesgo faster. The greater the

numberofticksrecorded,themore the S&P 500 willadvance. Conversely, thegreater the number of minusticks, the greater the fall intheS&P500index.

When did you realize theNYSE Tick could help youtrade?I got my Eureka moment in1987 when the NYSE Tickstarted registering minusNYSE Tick readings while

the market was going up. Irealized the NYSE Tick wasgivingawarningsign,similarto the red line on atachometergauge.Thismeantthe engine was warning thatgoing this fast could destroythe engine. In other words,thestockmarketwasmovingup so high that the internalsof the market could getdestroyed,andtherecouldbeacrash.Iwasgettingextremereadingsover1000.

So readings over 1000 areextreme?Yes. It occurs less than 3percentofthetime.Theother97 percent of the time, theNYSE Tick falls within anormal environment.When Iseeareadingofplusorminus1100 or 1200, that is evenmorerare,perhapsone10thofapercent.Themainpointisifthe market is going up thishigh, there should be a plus

1000 tick. When there aremovements up, it shouldcorrespond.

So the tick was givingnegativenumberswhile themarketwasgoingup?Iwouldn’tsaynegative.Youshouldnotgeta lesspositivereading when you have apositive price movement.Theyshouldgohandinhand.Andguesswhat?ThatiswhatI am seeing right now. The

market internals don’t havethehorsepowertokeepgoinghigher. As soon as we get abad news item, or somethingunexpected, the market willgo down. The horsepower isgettingweaker.Themarketisgoinghigheronfumes.Prettysoon it’s going to just quit,and go backwards. Themarket is inching its way upbut there is no horsepower.We’re not registering plusthousand ticks. When the

market goes down, you willsee extensive ticks on thedownside. The prices aregoing up but the tick is notfollowing. It will eventuallygointheotherdirection.Thesteeper the hill, the faster itwillgointheotherdirection.

Howbadcoulditget?IftheNYSETickevermakesit to minus 1600, a rarereading, the stock marketengine could blow.The term

that engine experts use is“dieseling,” where the RPMescalates in an overheatedenvironment. Put anotherway, the engine becomes amissile,i.e.itblowsagasket.This is the point I call the“unclepoint,”wherethepainwill be so great someonecries, “Uncle!”Toput it intoperspective, in 2009, the tickreading was minus 1600, averyrareevent.Theintensityoftheselling

that we are going to witnesswill be like nothingwe haveexperienced before. In 1987,therewasa readingofminus2000,whichiswhenyouwillget a crash. It was down 20percentinoneday.

So the NYSE Tick doesn’talways go in tandem withstockprices?Exactly. In fact, thefascinatingpartiswhenstockpricesmoveupbuttheNYSE

Tick does not. It isdivergence. The greater thedivergence, the bigger themarket will reverse directionin the future. To put it intoperspective, in the winter of2014, I was consistentlygetting less positive readingsas the stock market pricesheld. That is very rarebecause eventually stockprices have to catch up withtheNYSETick.

What is the NYSE Tickshowingyounow?I have never seen theseextreme readings in 28 yearsof studying the NYSE Tick.That’s why I have beenwarningpeople.Accordingtothe tick, we’re already in abear market but the priceshaven’t confirmed it yet.Right now, there is a higherprobabilityofusgoingdown20 percent than up 10percent.

In 2008, the divergencebetween the CCT and stockpriceswasevenworsethanin1987.Andnow,in2015,itisworse than 2007. There arefewer and fewer stocksmoving up. The weakerstocks in the S&P 500 aregetting weaker, and evenmedium stocks are turningnegative. The tape looksterrible to me but it stilldoesn’t fall. It’s remarkable,butitwon’tlast.

Recently, the S&P hasmoved with less speed andless horsepower. The NYSETick is registering moreminus numbers while stockprices are going sideways,which is another divergence.It’ssimilartotakingabusupa hill that doesn’t haveenough horsepower to makeit to the top. This is whatcould happen to the stockmarket. There’s not enoughpowertosustaintheclimb.

Could the NYSE Tick bewrong?Tomyknowledge,theNYSETick has never been wrong.Eventually prices must catchupwiththetick.Aspricesgoup and there are fewer newhighs,it’sasignthemarketislosing energy. I believe thatwhen the smoke is cleared,the coming bear market willexceed 53 percent. In 2014,some might have wanted toputmeinastraightjacket.By

theendof2015,Ithinktherewill be a major correction.Truthfully, it scares me todeath.

Whydoesitscareyou?Towards the end of 2014,stock prices kept movinghigher but the NYSE Tickkeptweakening.Theralliesinpriceswere not accompaniedbyplus1000 ticks.Onmanydays, prices advanced whilethe daily CCT registered a

minus number. This is arupturing of the guts of themarket.

Why is there such a hugedivergence?I believe it’s the Fed. I’m atape readerand IwatchwhatishappeningintheS&P500.What I am seeing can onlyhappen with a monstrouscomputer program. Thisprogramoftencomesinatthelast hour to try and save it.

Evenwithallthismoney,theS&P didn’t have a sustainedrally.Thistimethedamageisgoing to be worse than in2007.My indicator is telling me

that the computer algorithmsthat are manipulating themarketcannothandleitifwegetahugedownday,suchasdown200ontheS&P.Itwilltearthemachinesapart.Therewill be no buying when thathappens. This is happening

becausetheFedhascreatedabubble of bubbles. I haveneverseenitsoskewed.It’satextbook bear marketcondition.Forexample,inSeptember

2014theDowwasmakingalltime highs while the Russellwasdown10percent.Thisisclassic bearmarket behavior.The old adage is theDow isalwaysthelastindextoreachan all-time high before thereisamajortop.Rightnow,the

NYSE Tick is screaming,“GetoutofDodge!”

Could this divergencebetween prices and theNYSE Tick go onindefinitely?No.Not indefinitely.But theextension of time will createan even greater divergencethat has to be snapped backtogether.Inthepreviousthreeinstances, 1987, 2000, and2008, the market crashed by

over 20 percent withinmonths of the reading.Usually, you have threemonths leeway before themarket falls. With theSeptember 2014 reading, Ican’t say when the marketwillfall,exceptthatIknowitwill, and it will be horrific.An engine not utilizing allcylinders has diminishedhorsepower.Amarketwithadiminishing NYSE Tick hasdiminishedinternalpower.

Is it possible you’re justseeing a strong bullmarket?Notnow.As theNYSETickexpands, develops, andmatures,itwilleventuallygetoverbought. Prices will stillgo up along with the NYSETick.That’sordinarilyhowamarket develops a topwhereitisplainoverboughtandduefor a short-term pullback.That ishowanormalmarketoperates.However, if I get a

lotofminusticks,pricesalsodecline. The market is apendulum,andthat’showit’salwaysworked.But,andthisishuge,there

have been three instances inthe past when stock pricesand the NYSE Tick havediverged radically. In theserare instances, prices will bestill going up but the NYSETick is showing less positivereadings. The three othertimesthisoccurredwasinthe

summer of 1987, the firstquarterof2000,andthethirdquarter of 2008. Each wasfollowed by a severe marketcrash.ThefourthtimeIhaveseen

this reading began in mid-April 2014. The market hasbeendeterioratingsince then,but it’s takena long time forprices to retreat. Actually,during a typical bearmarket,the last piece to fall is theprice. Many people don’t

realizethat.

Whatwastheworstmarketenvironment youremember?I wasn’t actively trading in1973 to 1976 but it was aterrible market. That wasduring the Nixon Watergatetrial.Wewent from 1000 onthe Dow to 600. Brokerscame into work and asked,“How far will it go downtoday?”Everydaythemarket

wentdown.Everyday!AfterNixon resigned, no onewanted to be in the stockmarketforalongtime.As for me, the worst

market environment that Iexperienced was the 1987crash. Thanks to the NYSETick, I hadmy first million-dollarprofitin1987,butafterthe crash, stocks were hated.The only ones who survivedwere short-term traders. Thefear I have now is that we

could go through another1987typecrash.

What do you remembermostabout1987?I remember what happenedbefore the crash. I wasworkingforafirmcalledE.F.Hutton, one of the topbrokerage firms in thecountry. They were thecompany with a popularadvertisement that said,“When E.F. Hutton talks,

peoplelisten.”In July, the company took

250 of its top brokers toManhattanasa reward.Theyshowedustheirnewbuilding,a glass tower that was themost opulent thing you eversaw.Ithadafour-storyfoyer.A few of the brokers jokedthat this must be the top ofthemarket.Itturnedouttheywere right. Think about this:InJuly1987,E.F.Huttonwasone of the best in the

industry. By October, therewas no more E.F. Hutton!They went fromKing of theHill to a name found in thehistorybooks.During the next bear

market,otherbrokeragefirmswill also suffer immensely.When there is no volatility,commissions will die, therewill be no trades and fewopportunities.Evennow, I’msure the trading rooms inNew York and Chicago are

screaming forvolatility.Thatwill change as soon as thebear market starts andvolatility is returned to themarket.

Whatdidyouseebeforethe1987crash?Therewastotalcomplacency.No matter how bad thingsgot, no one thought therewould be a 20 percentcorrection. Not only did itcorrect but it fell by 20

percent in one day. No onebelievedthemarketwouldgodown by that much. Thatperiod spawned the term,“Black Monday,” the day ofthe 20 percent correction.Computerscouldnotkeepupwhileorderswereexecutedinapricingblackhole.

Were there warning signsbeforethe1987crash?Yes, there were, and inhindsighteveryonesawthem.

First, the 1987 market wasstanding on a very weakfoundation.Thestockmarketis similar to a largeskyscraper that requires asolid foundation towithstandvolatility and adversity. The1987 environment was atranquil,peacefulbullmarketthat buyers universallythought was safe. Theeconomy had been in anupswing for several quarterssince the previous Fed chief,

Paul Volcker, had containedtheevilmonster,inflation.The market had been

making steadyprogress sincethe great bull market hadbegun in August 1982. Atthat time, the Dow hadcrossed the 1000 thresholdand had never looked back.Between 1982 and 1987,therewerebumpsbutnothingof great significance. Anydecline was met by ralliesthatspreadthroughallsectors

of the market. The breadthexpanded,asdidvolume,andmany stocks made all-timehighs. The attitude amonginvestors was that buying onthedipwassafeandprudent.Chartistsbecamecheerleadersfor the bull market as thechart showed a massiveuptrend. What could gowrong?

Whatelsedoyourememberduringthattime?

Fear wasminimal, and 1987began with the hope ofeconomicprosperity.TheFedhad a new chieftain, AlanGreenspan. The changing oftheguardfromFedChairmanVolcker to the inexperiencedGreenspan was noticeable.New Fed chiefs try andestablish themselves and cuttheirtiestothepreviouschiefby taking the economy in anewdirection.Greenspanwasdeveloping his own agenda

that was distinctly differentfromVolcker’s.Volcker, the old and

experienced veteran, hadsuccessfully navigated themarket through a dangerousstorm, and successfully beatback the enemy, inflation.Investors were complacentbecause they believed themarket was unstoppable. Asthemarketcontinuedtorally,making all-time highs, ittotally erased any fears of a

bear market, or even asignificantcorrection.The most noticeable

differencewasthecalloptionpremium valuations, whichwasaprecursortothewidelywatched volatility index, orVIX. In 1987, there was noVIX. Nevertheless, calloptionswereincrediblycheapbecausevolatilitywassolow.When options are incrediblycheap, that’s a red flag.Ironically, that is what we

saw in December 2014.Everything is contracting:volatility, volume, pricemovement,andspeed.

What did the NYSE Ticktellyoubackthen?When I looked at the NYSETick in1987, I sawalarmingnumbers. The internals wereshowingacrashbutthepriceswere not. I noticed that therallieswereveryanemic.Thehighstockpriceshadcovered

up all the cracks so mostpeople didn’t see it. It waslike a 90-year old running araceatfullspeed.Bythethirdweek of August 1987, wewere at all-time highs. InSeptember 1987, many proswondered what was wrongwith the market. The marketinternals were crumblingwhile the market labored togoup.Put another way, the

marketbreadthiswhenmany

stocks and sectors are goingup at the same time. But ifsome sectors are going upwhileothersaregoingdown,that is the cracking of thedam. In 1987, the breadth ofthemarketwasterrible.Whenyou have no volume orvolatility, then the breadth isweak. For a bull market tocontinue, you need volume.However, before pricesretreat, breadth begins toweaken. Many people don’t

see this, but day-to-day tapereaders likeme see a glaringredflag.Theinstitutionswerenotwilling tocommitmoneyin any sizable amounts. Thiswas indicated by fewer andfewerplus1000tickreadings.Before the 1987 crash, the

NYSE Tick showeddiminishing energy. It wasacting likeanoldengine thathad lost power. All thecylinders were not firingproperly,likeamissingspark

plug, so horsepower wasminimized.Wewereslippingintonegativeterritory.

When was the 1987 topmade?Theactualnumericaltopwasmade in August 1987. Thistranslates to a triplemove inthe Dow in only five years.The triple valuation isimportant to remember.During that time, in 1987,there were many changes. A

newFedchiefwasappointed,inflation was driving peopleto despair, and gas had justcrossed a dollar a gallon forthe first time ever.However,interest rates were rising,which rewarded savers. Thisis completely different fromwhat is happening in 2015when theFed’spolicieshavediscouragedsaving.

Does 2015 remind you of1987?

When I think of thesimilarities between now and1987, it’s remarkable. In1987,therewasanincreaseincomplacency, greed, andincreased consumerconsumption. A popularmovie at the time, WallStreet, had amantra: “Greedisgood.”From late August until

mid-October 1987, the stockmarket went through a darkperiod. It resembled a storm

that was a gray spot in thehorizon. The perceptionamong investors was it willbe a sprinkle, not a tornado.Remember this was also thehoneymoon period of FedChairmanAlanGreenspan,somore latitude was given tohim without proper scrutiny.Byhisfifthmonth,hehadtohandlethebiggestcrisissincethe1929crash.JanetYellenisthenewFed

chief,andsheisstilllearning

the ropes. Just like in 1987,there is complacency, greed,and increased consumerconsumption. History doesrepeatitself.

Why did you think themarket was going to crashin1987?In September, the marketslippedalittle,anditseemedsluggish.Theheavinessofthetape reminded me of a bustryingtogettothetopofthe

hill.Theheavinessofthetapetold me the bus wasoverloaded and no one waswilling todisembark.Severaltimes, the upward moves inSeptember werepainstakinglysloworstalled.The NYSE Tick was

giving a warning that therewas no energy. The bus wasoverloaded with bulls and itcrawled higher but on littlegas or horsepower. The lastbulls climbed aboard an

exhausted, powerless buswith poor brakes. The hillwas too steep, the load wastoo heavy, and therewas toolittle horsepower andinadequate brakes. Lookingback, there were red flagseverywhere.Thebullsdidnotknowtheyweredoomed.Thebuscareenedbackwardoverasteepmountain.

What happened when themarketcrashed?

The earthquake hit onOctober 29, 1987: BlackMonday.Thatmorning, therewere no bids. I’d never seenanything like that inmy life.When it rolled over, it waslikeanavalanche,andwehada20percentcrashinoneday.This was a short-lived bearmarket. After six weeks, themarketlost35percent.Itwasincredible the amount ofmoney that was lost. Thatwave pushed the 90-year-old

overandthecrashoccurred.Thereasonfor thecrash is

unknown,but the falloutwasdevastating.Wewentfromanall-time high to a massacre.My theory is that when amarketgetsthathigh,itgivesback everything. In sixweeks, we gave back 18months of gains. It washorrific.After thecrash, theyblamed computerized tradingfor thecrash,so theymadeanew rule: no computerized

trading. Obviously, that ruledidn’t stick. And now, 20years later, we’ve gone fullcircle. If there is a crash,they’ll probably blame it onthehigh-frequencytraders.Before the crash, at first I

wasn’t even sure what theNYSE Tick was telling me.Fortunately forme, I figuredit out in time. I had sevenaccounts loaded with putoptions. On Wednesday, Ipaid $4 for the puts. On

Friday, theywereworth$11.By the end of the day ofBlackMondaythedayof thecrash, they were worth $128each. From $4 to $128.Incredible.

Whatdidyoulearn?1987 was an abruptawakeningtoreality.All-timehighswerehitintheS&P500after a very persistent bullrallycarriedpriceshigherandhigher. It worried few and

fertilized greed in many. Ifyou look at a chart in 1986,you’d see a progression ofhigher highs. In 1986,confidence was growing.Complacency turned intogreed at the beginning of1987until theOctobercrash,whichwipedout theprior18monthsofgainsinsixweeks.

Is this the fate of the 2015stockmarket?If I overlay the 1986 and

1987 chart on 2015, it’spossible the 2013 and 2014gains made by the S&P 500would disappear. In myopinion, there is a goodpossibilitywewillseea20or30percentcorrectionin2015.It could get even worsebecausecomplacent investorswill buy on the dip.Eventually, greed turns tofearandalowerlowcouldbereached.Thenextdeclinewillbetheproverbialbearmarket.

That’s when the bear hasclawedagashonthebullthatwill bleed the bull toweakness.Iwilllookforfourtimes average volume andcapitulation. Because bearmarketsarehardtotime,youtry and look at the biggerpicture. I stay away frommaking specific predictionsbecause so many bad thingscan happen. When we getthere, there will be ways tomakemoney.

Coulditreallygetthatbad?Yes.The secondwave downwillpassthefirstsupportareaand continue trekkingdownward. With eachdownwardthrust,volumewillgradually increase at analarming pace. It will take aconsiderable length of timefor complacent investors tochange their mindset toterrifyingfearthatmarkstruebottoms.Much carnagemusttake place to stock prices

beforethereisrealfear.Also,each bounce must lackconviction with diminishingvolume. All rallies willappearasiftheyareapersonwith tennis shoes trying towalkalonganicysidewalk.

So you really think 1987couldhappenagain?Absolutely.The2014marketiseerilysimilarto1987.Iseethesamecomplacentattitude.Themarketedgedupin1987

but it felt like you werebuilding a house on sand. In1987, at first I didn’t knowthe NYSE Tick wasscreaming Red Alert. Thelonger the warning signalpersists, the greater thecorrection will be. A failureto address the problem willtempt fate. There were threemajorbubblesinU.S.history:1987, 2000, and 2008. I canadd one more to the list:2015.

What other similarities doyouseewith1987?In 1987, a few days beforethecrash,theNYSETickwasbusting apart. And then, onBlack Monday, there was a20percentdeclineintheS&Pin one day. I thought I’dnever see numbers like thaton the NYSE Tick again, oron my CCT, but I’m seeingthem again. The foundationof the building is weakeningand is turning intodry rot. If

you look at the outside, youdon’tseeit.I’m nervous right now

because theNYSETick is ina bear mode and headedsouth. The NYSE Tickalways precedes prices, andthis has been happening formonths.

What else did you learnduringthisperiod?In retrospect, the morecomplacent the investing

crowd is, the greater thedanger.In1987,interestrateswere much higher than in2014, but they were stillconsideredbenign.Thisledtoanother danger sign, greed.People were borrowing topurchase stocks and bonds,and it grew at an alarmingrate. It became acceptable toborrow money from varioussources including yourbroker. After all, fear wasobliteratedbygreed.

In 1987, bullish mutualfunds were attracting largesums of money as the Dowcrossed 2,700, more thantriple from the start of the1982 bull market. Fewinvestors had a fear ofheights. Brokerage firmspounded the bullish drums.AtE.F.Hutton,theyunveileda four-story lobby that Ithought was a total waste ofmoney. High-level officers,who saw no danger in the

lofty heights of the market,had spent too much money.Greed prevailed on WallStreet.

How about the crash of2000 to 2003? Anysimilarities?Yes. In2000,every rallygotworse andworse, and by thetime we got to 2001, theNYSE Tick was negative,which means the cumulativenumberonmyCCTwasalso

negative. I used togetphonecalls from desperate traders,“Save my portfolio!” I toldthem the horse was alreadyoutofthebarn.Evenoldtimebullsgottheirclockscleaned,and their portfolios werebleeding. Many people Iknewdidnotsurvive2000to2003.

Do you also look at thebondmarketsforclues?Yes, I study it every day. In

1987,thebondmarketstartedtanking, leading the stockmarket by three or fourmonths.Thatdrove the stockmarket down. In the summerof 2014, the bond markettoppedout18monthsearlier.The lead-time is usually notvery long, and that’s whatscares me. We could beentering the longest bearmarketI’veeverknown.Another thing I see right

now is thatbonds and stocks

are out of synch anddisjointed. Stocks and bondsare usually wound together,as if they are in love. Now,stocksandbondsareactingasifthey’renotpayingattentiontoeachother,andthatdoesn’tmake sense. They are barelycommunicating. Thedivergence between stocksandbondsisnothealthy.My greatest nightmare is

what happened in the early1970s when the market goes

dead and there are noopportunities. For years afterthe 1970s, the market wentabsolutely nowhere. Onlytraders survive when thathappens. All you can do istrade swings because therewas nothing else to do. Inthose days, Ma and Paavoided stocks, but theywouldbuymutualfunds.Fewpeople wanted to hear aboutthe stockmarket.Right now,you have to know how to

make hay when the sun isshining because a storm iscoming.I can’t prove it but I

wonderiftheFedisusingallits energy to keep the stockmarket up.MaybeFedChiefJanet Yellen believes thestockmarketisthekeytohersuccess. She has littleunderstanding of the stockmarket, or what to do if themarket gets out of hercontrol.Itwillgetawayfrom

her.Whatwill be the triggerpoint? I have no idea, butthinkofavacantbuildingthathas a gas leak. The gas hasbeen leaking for a long time.The longer the gas leaks, thebigger the explosion. It willtake a catalyst to trigger anexplosion, but no one knowswhatthatcatalystwillbe.Thelonger thegas is in thereandignored, and forgotten, thegreater the explosion. Thestock market is like the

vacant building. Somethingmajorisgoingtohappenthatwill be massive. It’s nottomorrow, but it will besomething that creeps up onyou like the leaking gas.When itblows, theexplosionwillbehorrific.Whatwillbethe trigger point? I don’tknow.

Iseeyou’renotabigfanoftheFederalReserve.No, I’m not. The Fed has

helped to create one of thebiggest bubbles in stockmarkethistorybut theydon’tsee it, or they’re ignoring it.They can’t ignore it forever.You have to be a student ofthe stock market tounderstand this. I believe theFedthinksthatallyouneedislowinterestratesforastrongstockmarket.Sotheywilldoeverything in their power tokeep interest rates low.Theyjust don’t get it. After all,

interest rates are higher thantwoyearsagoandthemarketstillwentup.I don’t think Janet Yellen

understandsthestockmarket,but she’s not the only one.TheFedhasa longrecordofnotrecognizingbubbles.AlanGreenspan didn’t see abubble, nor did BenBernanke, nor did JanetYellen.

So every Fed chair has

problems?If you go back in history,everyFed chairperson, goingback40years,withinthefirstyear, there are cataclysmiceconomic fiascos that playsout in the stock market.Volatility increases and theVIX often goes into the 20sand 30s. And because theyare new, they don’t knowhow to handle it. In October1987, within a year ofGreenspan’s being Fed

chairman, we had a crash.AndwhenBernankecamein,withinayear,wehadanothermajor collapse. They put thenew chairman in withoutexperience, and they don’tknow what’s going on. Andnow Janet Yellen is the newFedchairman.

So you think the Fed willmishandlethemarket?I’mconvinceditwillbeevenworseonthedownsidethanI

imagined. The market is soripe for a collapse. Yellendoesn’t have the speed,dexterity, or experience tomanage a collapse when itoccurs. The story is alwaysthe same with the Fed. I’veseenitsomanytimes.I think the market has

gotten away from them. Infifteen straight months, theypoured over a trillion dollarsintothebondmarket.Nooneasksthemhowtheyaregoing

tounwindallofthisdebtandstart selling it. It makes nosense to me. They are goingto have problems unwindingtheirprograms.To me, the Fed is like a

guy who owns a fast sportscar that he can’t control. Hekeeps going faster and fasteruntil it crashes. Eventually,people are going to realizethat theFed isall smokeandmirrors. After the marketplunges, they will come out

with a new plan and themarketwillgraspatanythingthat gives them hope. Thenext time, it will be likeChicken Little, and peoplewill stop paying attention tothem. They will lose allcredibility.

Buttheylistentothemnow,don’tthey?The Fedmakes us feel goodand gives us the false hopethat the stockmarket is fine.

But when the marketunravels, it will be like aperson you trust who isbeyond reproach, but who islying toyoueveryday.Whenyou find out your friend islying,you loseall trust.ThatwillhappentotheFed.Everyone thinks the Fed

controls everything and willbail everyone out when themarketstarts tocorrect.EventheFed thinks it’s invincible.Throughout its history, the

Fed is notorious for alwaysbeingslowtoreact.Ihavenoidea how they are going toextricate themselves fromtheircurrentposition.

Whatshouldtheydo?That ship has already sailed.It is too late. If they reducedthe excessive amount ofmoney printing, and hadsomeparameters,thedamagewouldn’t be so great. If theyhad allowed a 20 percent

correction, and not allowedthe market to get so high,they could have minimizedthe damage. The lastquantitative easing was likegoing 125miles an hour andthenacceleratingto150milesan hour since nothing badhappened.The Fed got too big for

theirbritches.Theythinktheyare invincible, but they’renot. In the past, when thingsunraveled and there was a

crash, they would divertblametoanoutsideforce.Noone took responsibility. I seethe Fed as being in a pitch-blackroomwieldingasword.Theyare swinging the swordaroundwithoutknowingwhois in the room. After thesword kills someone, theypanic. They have a powerfulweapon but don’t know howtouseit.

Should investors be aware

ofwhattheFedisdoing?Yes.Forexample,youshouldalways know when theFederal Reserve has itsFOMCmeeting.Thismeetingis a game changer. Unawareof what the Fed is doing issimilar to walking down thestairsinthedark.

Do you think the Fed isafraidofinflation?Yes. If they acknowledgeinflation, they will have to

raiseinterestrates.TheFedisafraidofthatfirstraise.Whenthey do raise interest rates,they will probably raise it aquarter, which is nothingwhenitcomesfromzero.There is nothing more

grievous than inflation. It’s aheinous monster that candamagetheU.S.economy.Sowhatdoes theFedsay?Theysaid they want to bringinflationhigher.Theyactlikeit’s not very bad. What is

going to happen is inflationwillgetawayfromthemlikeitdidinthelate1970s.PaulVolker, the Fed chair

in the late 1970s, hatedinflation. He attacked it byraising interest rates to 21percentonshort-termmoney.I personally purchasedCertificateofDepositswitha21 percent annual rate ofinterest. Twenty-one percent!Today, that’s unimaginable.Volckerthoughtinflationwas

an infectious disease thatruined prosperity, and he leteveryone know. He said itwasourenemy.In2014,theFedsaidthatit

wantedinflation,andactslikeweneedmoreof it. I’msurethat Volker is shaking hishead at those comments.Inflationisnotsomethingtheeconomywants or needs.Bythe time theFed realizes thatinflationisourenemy,itwillbetoolate.

Idon’t think theFedhasahandle on inflation. One dayitisgoingtoboomerangbackat them. The Fed does notwant to hear about inflation,and they almost don’tacknowledge it at all. Theykeepdenyingthatitexists.

Can the Fed keep sayingthereisnoinflation?The credibility of the currentFedwillerodequicklyiftheyact like there is no inflation.

People will start bycomplaining about thegrocery bill and taxes. Asgeneral living expenses gohigher, no one will believetheFediftheysayinflationisat 2 percent. Eventually, theFedwillhavetoraiseinterestrates to counteract inflation,but by then they will bebehindthecurve.

What do you think willhappen to the market in

2015?I can’t say when it willhappen, but I wouldn’t besurprised if 2015 will be thebeginning of a bear market.TherewillbenumbersontheNYSE Tick that I’ve neverseenbefore. I can’t say therewill be a crash, but I canclearlyseethesignstherewillbe a 20 percent or greatercorrection in 2015. When itstarts initially, it will limpalong, and the rallies will

havelessenergy.Youneedtosee lower highs and lowerlows in the major indices,similar to a declining stairstep.Itcouldtakemonthsandmonths. Every rally abortsbefore theprevioushigh,andevery decline penetrates andaccelerates to a lower low.That’s when you know thecorrectionhasstarted.

Canyougiveanexampleofarallythathaslessenergy?

InMarchandApril2000,themarket made a higher high,which caused euphoriaamong many investors. Inever saw anything like it.However,bytheendofApril,the market broke to thedownside and the rallycrumbled. I’m seeing thesamethingnow.InDecember2014, prices made a higherhigh in a very short timeframe.Iwillnotbesurprisedto see this rally run out of

steaminearly2015.

What’s so important aboutrallies?Youcantellthestrengthofamarket by the way it ralliesrather than the way itdeclines.Mostpeoplelookatthe downturns, but I get myclues from the rallies. If theralliesaresluggishandheavy,that is a clue the market isclose to rolling over. It’s thenext rally thatwill setup the

next calamity. In a typicalbearmarket, all of the ralliesare very tepid. People getexcited when there is adecline, but I look at howdifficult it is for amarket torally,ortogetbacktoitsoldhighs.

DoyoubelievetheS&Pisinabubble?Yes. Few people say themarket is in a bubble. It’s aheinous word to investors.

Rightnowwe’reinthedenialstage. Everyone, includingthe Fed, denies there is abubble.IftheFedhadbackedoff and let the market godown naturally rather thantrying to talk itup, then theycould have prevented abubble. But for some reasonthe Fed doesn’t want themarket to go down. That isunnatural andunhealthy.TheFed hasn’t learned anythingfrom the 2008 and 2009

debacle. They still giveeveryonefalsehope.

What do you tell peoplewho think you’reexaggerating how bad itcouldget?In 2000, noone rememberedwhat had happened in 1987.When I gave speeches, Icould have been talking in aforeign language. We’reseeing the same thing now. Ijust can’t believe that

memories are so short. Aperson who does notdiligently study theconsequences of past historyis doomed to repeat thoseconsequences, and face thefutureunprepared.Iwasoneofthespeakersat

a day trading seminar inFebruary 2000, and I wasalmost laughed off the stage.No one would listen to mewhenIsaidthemarketwouldcorrect by 50 percent. They

didn’t want to hear mywarnings. They did want tohear from the main speakerwho actually proclaimed,“It’s different this time,” andthe audience ate it up. I wasthinking to myself, “What amoron. It’s never differentthis time.” Not surprisingly,they never invited me tospeakattheconferenceagain.Only a few months later,

themarketcrashed.Andnow,there’s a whole new

generation of investors readyto get slaughtered.When themarket goes south, you willnot find a rose among anythorns. The devastation willbewidespread.

Sowhatdoyoubelievewillhappenin2015?Right now, there is nofoundationunderthismarket.I’m amazed that the marketstill hasn’t had a 10 percentcorrection in over two years.

That is very unusual, and ittellsmethecorrectionwillbeevenworsethaninotherbearmarkets.Ifthatisn’tabubble,Idon’tknowwhatis.The NYSE Tick and my

CCT is showing we’realready in a bear market. Isawthisin2000andin2007.It’slikebeingintheTwilightZone. It’s similar to goingoutside on a rainy day andgetting sunburn. It’s totallyabnormal. It’s ripping apart

the inside of themarket. It’slikehavingsmallcracksonadam, cracks that areimperceptible to the eye.Finally, the dam gives way.Eventually, prices will gosouthandtheNYSETickwillbeevenworse than I’veeverseen. Also, the longer theduration,thegreaterthemovewillbe.

If we’re already in a bearmarket, why does the

marketkeepgoingup?I believe we’re in a bearmarket but prices haven’tconfirmed it yet. The pricesare always the last indicatortoconfirmabearmarket.Thepublic believes the firstindicatorisprices,butit’sthelast.Wearewaitingforpriceconfirmation. In a bearmarket, the market getsheavier. The market isenteringintoaterminalstage.The longer it goes without

healing,thegreatertheinjury.

It almost sounds like youwantthemarkettocrash.No, Iamnotexcitedaboutacrash.Infact,amonstercrashis not good for anyone. I’drather have a correction thana crash. Once there is acorrection, it increasesvolatility, which is when Imake themostmoney. Aftera major crash, there are fewopportunities to trade. You

eitherhavetobeallinontheshortsideoryoumissit.Remember this: The first

break of themarket is short-lived and dynamic. That iswhat we had inmid-October2014. If there isacorrection,insteadofbeingshort-lived,itcould take severalmonths oryears to hit bottom. Therewill be many tradingopportunities on the waydown. I hope it’s only acorrection and that volatility

returnstothemarket.

How do you define acorrection?A 10 percent correction is anormal event that occursperiodically. A 20 percentcorrection is similar to anobese diet. The correctionthat is coming for 2015 -2016 will alter complacentattitudes. The complacencyhas stretched far longer thananyone imagined, thanks

primarily because of theFed’seasymoneypolicies.A30 percent crash is the coldturkey, no-more-Twinkiesdiet that is prescribed for theperpetuallyplumpbull.

What would a severecorrectionbelike?It could be like 1987: Shortand sharp with high volume,a devastating knife blow. Itcould also be a long, drawn-out affair, which is what I

thinkwillhappen.Ithinka20percent correction is a highprobability, and any rallywouldbetepid.In this scenario, the

bouncesareanemic,andgivelittle satisfaction to the buyonthedippers.Infact,nearlyeverybuyon thedippergoesunderwater over a torturoustime period until they can’tstanditanymore.Themarketattracts buyers on the waydownbecausetheyseeitasa

great opportunity to makemoney. But the market goesdownfartherthananyonecanimagine. Itwouldbenothingto lose 400 to 500 S&Ppoints. It could take us backto1500or1600on theS&P,which is a 20 percentcorrection. There is also agrowing probability that agreater than 30 percentcorrection will be seen fromthe all-time highs to thebottom.

Many long-term investorswill sit on their hands andstay in the market. They aretold not to worry, be happy,thatit’sabuyingopportunity.Meanwhile, themarketkeepsfalling.Thiscould takeyearstoplayout.When there is a major

market correction, manypeople will not go in thestockmarketagain,especiallyanyonenear retirement.Theywill not risk their retirement

money. Fund managers willbe hated, despised, andavoided. Many mutual fundswillcloseasinvestorsflee.

What is the catalyst thatcan cause this kind ofcorrection?No one knows where thecatalyst comes from. I thinkthe ship is already taking onwater,eventhoughthepricesdon’t reflect that. Thecannonball that will finally

sink it will come from asourcethatwedon’tsee.Butwhen the cannonball hits aship that is already partiallyflooded, it sinks a lot faster.I’mnotsure theFed isquickenough or flexible enough toheadoffadisaster.A multitude of things that

canhappenbut I don’t knowthe trigger. It can be anexternal influence such as aFed statement, economicreport, war drums, political

statement, or newsannouncement. The numbersI’mseeingontheNYSETicktellsmethatsomethingcouldcomeoutofleftfieldthatwillcreateastrainonthemarket.Virtually every major top

has to have a blow-off. InOctober 2014, we had anapproximately 10 percentcorrectioninthoseindexesinless than a month. But thenthey reversed. The bouncefrom the 10 percent

correction in the indices wasvery tepid. The volume waslower and the NYSE chartgrew weaker. Because myCCTdid not rally as high asbefore,itwasadivergence.Adivergence of a lower CCTwith higher prices createsdownwardpressure.

What should traders do ifthereisacorrection?If you are short, cover yourposition after the first

correction. Then stay on thesidelinesasthemarketrallies,then short on the nextupswing. This is for tradersonly,notinvestors.Ifthereisan extremeday, Imight takehalfmyposition,orsell italldepending on how extreme.The sharp first break in themarket usually doesn’t lastlong,anditralliesback.Afterthe S&P falls by 10 percent,people will buy on the dip.When the subsequent rally

stalls out, that’s when youbetterwatchout.

Howwillyouknowwe’reinadangerousenvironment?In my 35 plus years ofobserving themarket, I havelearned to assessprobabilities. When theprobabilities are greater than75 percent based on myindicators and theenvironment, I will takeaction.Rightnow,themarket

is in a precariousenvironment. It’s a chronicailment thatwill take time toheal and get back to a freemarketagain.

Even with all of thesewarning signs, why areinvestors still buyingstocks?Many people are in denial.They can’t believe therecould be a 20 or 30 percentcorrection.Ibelievetherewill

be a much worse correctionthan people realize. No onebelieves we could go down30 percent, but we could.People don’t want to hearaboutit,butit’spossible.

Whenabearmarketstarts,whathappensfirst?When the decline starts, theS&P500beginstoaccelerateby20to50pointseverythreedays while the plus days areinsingledigits.Forexample,

theS&Pmightfall22points,but rallies only 6 points. Asthemarket turns, it fallsveryquickly. The rallies arelaboredandslow,andonlowvolume. On the selloffs, thevolumeismuchhigher.Onthechart, themarket is

makinglowerlowsandlowerhighs. You will hear peoplesuggesting that you buy thedip, but the rallies don’tcome. People think it’s anopportunity to buy, but it’s a

falling knife. Those who areup 150 percent over the lasttwo years believe they aresafe,sotheyhold.Itwilltakemore convincing before theyarewillingtosell.

Whatdoes it feel like tobeinabearmarket?Bear markets can destroypeople’s lives, which is whyyou need to be prepared forthem. One of myacquaintances, an incredible

human being, had gonethrough a series of awfulevents. He was on his thirdmarriage, his son hadcommitted suicide, and hehad conquered alcoholism.He survived all of thesesituations. But he couldn’thandleabearmarket.Iwasinmytwentiesatthe

timeandInoticedthathehadlosthisconfidence.Hestartedasking me for financialadvice, but I knew nothing.

Hecouldn’tseeawayoutofhis financial problems, so hekilled himself. Sadly, if hehad been able to withstandanother six weeks, he mighthave survived the financialtsunami. Markets can makeyoudoubtyourself.Heturnedfrom a rational genius to amanwithnoconfidencewhosawnowayout.Bear markets are

destructive and destroy a lotof people. A full-blown bear

market oozes downward in aslow and methodical waysearching for lower levelslikelava.Theoozejustkeepsmoving down the hill,destroying everything in itspath.Nooneisimmunetothelava flow. You’d be amazedat how slow it seems, but itcreepsuponyou,andbeforeyouknowit,you’redown10,then15percent.Asthemarketstartstofall,

it starts to accelerate on the

downside, and could be likean avalanche, and the entiremarket begins to give way.The pebbles and rocks fallwithgreaterandgreaterspeedand energy. Most investorsthink it’s a buyingopportunity, but it’s not.Wehaven’t had a double-digitdecline in more than twoyears, which is reallystretching the timeline. Thisusuallyincreasestheextentofthedecline.

Whatelsehaveyoulearnedaboutbearmarkets?Theyusuallylastbetween18and 36 months. The worstbear markets are cancerous,andeatyouup,whichishowthey develop. Typically, theDow is the last to make alltime highs, which is typical.In 2014, Caterpillar, Disney,and Merck were holding theDow up. If you took thosethree stocks out, you wouldhavebeendownfor theyear.

In late September 2014, theDow Industrials made ahigher all-time high on lowvolume. Death Knell! InDecember 2014, there wasanother rally. We sawmarginally higher prices inthe S&P 500 but it was alaboredrally.TheCCTmadea lower high. That was awarningflag.Guess what? You need a

better foundation for a 100-story building. The

foundation has beencrumbling but you don’t seeanything until the buildingcollapses. The foundation ofthis market has collapsed.Whenyouadd incontractingvolumeandexcessivemargininterest,itsetsoffalarmbells.In December 2014, we sawthe Nasdaq make a lowerhighwhiletheS&P500madea higher high, another non-confirmation.IftheFederalReservewere

smart, theywouldallowa10percent correction and letsome of the steam out. Thatwould have been a lothealthier for the market.Instead, the market wenthigher. Now, instead of ahealthy 10 or 20 percentcorrection,theycouldcausea40 to 60 percent crash.Afterthe market falls by 20percent, there will be moreconcern. It starts escalating.Usually,thereisaneventthat

causes it to capitulate. OnethingI learnedfromstudyingpreviousmarket crashes:Thenext crash is always worsethanthelastone.

How does a bull marketusuallyend?It won’t end until there is ablow-off rally thatmakes theprices go parabolic. At theendof2014,themarketwentparabolic,whichisasigntherally couldn’t be sustained.

Bull markets in any marketgenerallyendwithsometypeof blow-off that could beassociated with a news item.In December 2014, the S&Pfutures had 38 consecutivetrading days without a 30-point swing downward. Itcreated a bubble of historicproportions,onethatcanonlyexist with extremecomplacency.

Whyisthatsoimportant?

Thestockmarketmustresttorecuperate and rejuvenate tomount another rally phase.The farther the marketextends without a 30-pointcorrection, the greater thepressure becomes. That wasone of the most extendedshort-term situations I haveever witnessed. Finally, onthe39th day, therewas a 30-point correction. Because ofthe number of consecutive

days we went without a 30-point correction, that is mydefinition of a parabolicmove.Tome, thatwasa lineon the sand of a changingmarketenvironment.

Whathappensnext?Eventually, the market rollsover and goes back down. Itbreaks theupsidemomentumand changes the environmentfrom a rally to the start of apersistentdecline,usuallya5

percent or greater correctionwithin60tradingdays.Inthelastquarterof2014,

the S&P went up over 250points without a correction.That is astonishing. Strongbullmarketsgoupanddownlike a stair step. This wasmore like a blow-off. Thehigher the market goes, thehigher the probability therewill be a huge decline. Themarket will go down a lotharder than anyone can

imagine. At the top, like in2015, no one thinks themarket will go down.Unfortunately, the marketcouldbeinthedeadzoneforyearsafteramajorcorrectionandbearmarket.Whenabearmarket injures portfolios, itcantakeyearstoheal,ifever.Typically, the longer a bullmarket continues, the longerthebearmarket.

What is like to be a short-

seller?It’snoteasy.Peoplecallyounames and tease you.As themarket goes higher, you feelterrible, and you losemoneyif you are shorting. Becausethemarkethasanupsidebias,people treat you poorly, andthey don’t want to listen ifyoutrytowarnthem.Ittakesa long time to get vindicatedbecause it often takes a longtimeforthemarkettotopout.It takes even longer for

people’s perceptions tochange.

Whatdoyoulookforwhenthemarketiscollapsing?I look for the speed of themovement, which increasesvolume, volatility, andtherefore, opportunity. Youcanmakemoremoneyinbearmarkets because the marketgoesdownthree timesfaster.It goes down quicker and ismore liquid. It’s similar to

being ina smoke-filled roomthat is ready to burn up andyoudon’tknowwhere togo.Youhavetoknowwhereandwhen to exit. A collapsecreates speed, frenzy, panic,and chaos. Each of thesecircumstances reduces aperson’s ability to actrationally.

Howbadcanitget?Idon’tthinkpeoplehaveanyidea.

We are in what I call anominous environment. Thethunderstorm is approachingandweknowit’scoming.Allof the characteristics arethere,but theseverityof it isthe big question mark. Youalso don’t know when it’sgoing tohit.Whenyouseeastorm looming, you go intothe basement. Right now, Icansensethatsomethingisn’tright.Icanfeelit.The majority can be right

for a period of time buteventuallythepurgingcomes.Purging means to change oreradicate excesses that createunhealthy, obese prices.Around the world, differentmarket environments haveexperienced this obesity. Aperson who is 300 poundsoverweight will take aconsiderably longer time tolose pounds than someonewhois50poundsoverweight.Therefore, a bear market

will be present for a longertime period if the previousbullmarketwasanelongated,protracted aberration thatdidn’t purge itself with acorrection. The stock marketis on a non-stop Twinkiebinge right now. It’s gonetwo years without a double-digit percent decline. Inmedical terms, the stockmarket has clogged arteries,high blood pressure, reducedmobility,andlessenergy.

Can you make money in abearmarket?Absolutely. First, once thecorrection starts, only traderswill make money. As themarket starts to plunge, thevolatility will be incredible.The rallies are tepid andlabored,whiletheselloffsaresharp and hard. The selloffsarethreetimesfasterthantherallies.

Can you take me through

the different stages that abearmarketgoesthrough?This will be a long answer,but based onmy experience,here are the different factorsthatformabearmarket.First,it takes a long time forinvestors to change fromoverconfidence to fear,especially if the bull marketlastsaslongasfiveyears.STAGE1:Thefirst factor

Iobservearetherallies.Ifthemarketdoesnotrallystrongly

and even better, if it cannothold its gains, this is a cluethemarketiswounded.Itwillbevulnerabletofurtherinjuryiftherearelowerlowsonthechart.STAGE2:Iamsuspicious

if there isa lifeless rally inalow-volume environment.This tells me the institutionsare notwilling to buy. Sinceinstitutions are generally aherd and they watch theirpeers closely, if the entire

pack doesn’t follow inlockstep immediately, therally falters. You will hearpeople say, “This time isdifferent, and history won’trepeat itself.” But historyalways repeats itself. One ofmy rules is to study pasthistorysoyouaren’tdoomedto repeat those consequencesunprepared.If there isamarket rally, I

will also look at the NYSETickandseeif thereareplus

tick readings as high as plus1000. If I get those readings,ittellsmetherallyisgenuine.On theotherhand, if there isa double-digit rally, but wedon’tregister1000plusticks,thentherallyissuspect.You should know that in

thefourthquarterof2014,wewere stuck in Stage 2. Evenmore interesting, the dailyCCTreadingsIwasrecordingshowed thatwewerealreadyin a bear market. In other

words, although the marketwas slowly moving higher,the tick was giving meunenthusiastic NYSE Tickprints that were barelypositive.Thatdivergencewasahugeredflag.Actually, thedivergence was almost aswide as the Grand Canyon,which is why I’m soconfident the bull market’sdaysarenumbered.STAGE 3: The rallies are

tepid and weak, have no

energy,andareverynegative.That’s how bear marketsstart.Itusuallystartsoffslowandgoesfasterandfasterlikerolling down a hill, and thenyou have an avalanche. Youmaythenlose50or60pointsontheS&P500.After a greater than 3

percentcorrection,themarketshould be able to mount ameaningful reflex move. Ifnot,thenthatisaredflag.Forexample, if there is a 4

percent correction, but themarket is unable to bounceback at least a half (or 2percent in this example), thebearmarkethasarrived.I also look at the speed of

the bounce. In a mature bullmarket, the market will beunable to bounce backquicklyorwithanyzeal.Ifitcannot bounce back (retrace)at least half of the bounce,that’s a red flag. The bearmarketishere!

We entered stage 3 inDecember 2014. Then thedaily CCT was unable tomake a higher high whileprices did. Then we had ablow-off rally as the tepidmarket made one last gasprally attempt.We rallied 250points on the S&Pwithout acorrection of even 30 points.Whenyoulookatthechart,itwasgoingstraightupfortwomonths. That can’t besustained. The 30-point

correction came in earlyDecember2014.Thismarkeda change in the environmentas the euphoria ended.Nevertheless, complacencywasstillasgreatasever.STAGE 4: I also look at

whatthechartsaretellingme.A lower low on a chart tellstechnicians that the mood ofthe once invinciblemarket isvulnerable. Technicians whostudychartsbelievethatifthemarket closes with lower

lows, buyers will startleaving. Therefore, the firstclue comes from the chart,and technicians are often thefirst to see that the firstpullbackissevere.The stubborn bulls hold

their position while sweatbeads appear on their brow.They say to themselves, “Ican’t sell here.” The longerthey are in the black(profitable), themore stayingpowertheyhave.

STAGE 5: During thisstage, the market begins toacceleratetothedownsidebyeroding 20 to 50S&Ppointseverythreedays,whileontheplus days, the market onlygoes up by single digit S&Ppoints. The move downwardoccurs quicker while therallies are labored and slow.At this stage, bulls are stillbuyingonthedips,butnotasenthusiastically. Therefore,thevolumeduringdeclinesis

increasing while the ralliesare not as energetic.Nevertheless, most bulls arenotthinkingofselling.Itwilltake a littlemore convincingbefore they reach the sellingstage (usually when it’s toolate).STAGE 6: On the chart,

themarketmakesalowerlowfortheentirequarterorhitsadouble-digit correction. Youwill see a stair step of lowerhighs and lower lows that

persists.Volumewillincreasebut has not spiked yet. Timehas become an enemy of thebulls.Now that portfolios are

down by 15 or 20 percent,bullish investors are thinkingof selling. A double-digitdecline causes hugeredemptions. Even moneymanagers are thinking ofselling as redemptions hit.Double-digit declines triggermore mutual fund

redemptions.STAGE7: Institutions are

starting to lighten positionsbecause they fear investorwithdrawals. The negativequarter irritates investors,which is the first hint theirmood is changing.Eventually, they will movefrom complacentpeacefulness to terrifiedpanic, but that takes time.Stubborn bulls have notliquidated theirpositions,but

investors are buying less.Eventually, the market willgive up all of its previousgains.STAGE 8: The news is

becoming more of a factor.As the bear market picks upsteam, there is less goodnews. Economic releases arenow viewed with moreskepticism. Analysts areconcentrating on less stellarnumberswhileignoringgoodnews as inaccurate or

suspicious. The scale is nowtipping towards terrifyingpanic,but stubbornbulls stillhold their positions eventhough sweat beads becometorrents.STAGE 9: Volume

increases almost daily withconsecutive down days. Arally lasts one to three days,while declines might last aslong as 5 to 10 days. Thestubborn bulls are starting toliquidate.Aftertheyaredown

20 percent, they think theworst is over. Many peoplethink that the Fed will savethemliketheydidinthepast.When the market keeps

falling, that’s when theinstitutions get out. They areforced to get out because ofthe redemptions. At thisstage, theFed is ignored andtheircredibilityislost.STAGE 10: The financial

news networks parade thebears on TV while the bulls

are viewed as frauds. Mostbullsgointohidinganddon’twant to appear on TV. Theyare busy trying to calm theirclients! The official bearmarketishere,havingerodedmore than 20 percent fromthe highs. The bears add totheir positions, while theword, “complacency,” haslong been a fleeting thoughtof investors. Any bad newsgains front page attention onall the networks. The bulls

liquidatemoreas red inkhasreplaced what were gainsonlymonthsearlier.Wavesofminus 1000 ticks areregistered. Volatilityincreaseseachdayasdouble-digit down days are moreprevalent.Themarketcrossesthe 30 percent correctionlevel with a straight linedown.STAGE 11: This is when

the bulls capitulate. Afterthey look at their statements,

people panic. They grasp onthehopetheFedwillhelpgettheir portfolios back to even.And once they realize theywon’t, they panic and sell.That iswhen investors throwin the towel.Volumewill beat greater than three timesnormal. Instead of onemillionS&Poptioncontracts,fourmillionaretradedinoneday.Atthispoint,themarketis overheating, and it willblow a gasket. The NYSE

Tick readings will registermultiple readings betweenminus1600tominus2100.Financial firms are on the

brink of collapse, and morefirms are in trouble. No bullwill ever admit they werebullish as they liquidatenearly all of their positions,turning once profitableportfoliosintoaseaofblood.It’s an avalanche of selling.Many brokerage statementsreveal equity losses of 50

percent or greater. Also,investors will ignore margincalls. In addition, there willbeone-daydownwardmovesthat exceed 100 S&P 500indexpoints.Investors lose all

confidence while brokeragefirms liquidate investorportfolios that are heavily onmargin. The market goesfrom being the belle of theball to the ugly sister. Themarketishated,andinvestors

cry in despair, “I neverwantto be in the stock marketagain!” Two full years ofgains eliminated in months.There won’t be anythingviewed as safe as all assetclassesfalltogether.

What strategies shouldinvestors use in a bearmarket?Ihavemade themostmoneyin bear markets but it’s noteasy.SomeofthestrategiesI

have used include buyingputson theS&P500,buyinginverse ETFs, shortingindividual stocks, and mostimportantly, sell longpositionsandmove intocashuntilthestormhaspassed.If you decide to buy puts

either for speculation orprotection, I stronglyrecommend buying MichaelSincere’s book,Understanding Options 2E(McGraw-Hill). His book

covers both basic andintermediatestrategies.Since most people aren’t

day traders and havedifficulty managing shortpositions,movingintocashisthe most prudent strategy. Ifyou wish to remain long afew stocks, sell down to acomfortable size. Investorsmust ask themselves: Howmuch pain can you stand?Overthenextcoupleofyearswe should see a 30 percent

correction in the stockmarket. If that is tolerable,then stay the course. If not,thenmovetothesidelines.

Whathappenswhenpeoplegetsthemselvesintroubleinabearmarket?Iwouldrecommendthattheyunderstand volatility. Buyandholderswant tohear thattheywillbeallrightduringabear market. They arebasically going through the

five stages of grief: denial,anger,bargaining,depression,and finally acceptance. Onceyou get to the anger stage,you have a chance to dosomething about it. Themarketwill give you enoughvolatility to get you out ofyourmess.Youneedtohaveasystematicplan.I tell thosein the anger stage they mustget smaller. If you’re 100percent invested, take 20percent off the table. With

every rally, take off 20percent. They usually won’tdoituntiltheyareforcedto.

I know that you areprimarily a trader ratherthan an investor. For thosewhowanttotrade,whatarethe characteristics of asuccessfultrader?The first characteristic istenacity. A successful traderis focused like a laser beamwith a goal to build greater

assets each day within areasonable timetable.Everyone wants to make amilliondollarsinoneday,butasuccessful traderisrealisticabout what he or she canachieve.In addition, a successful

trader must be willing tocommit to it full time.If it isa hobby or not takenseriously, the end result willbe a bigminus sign.Tradingmust be considered a

profession, and if not, thenyou will be separated fromyourmoneyveryquickly.Also, your trading habits

must fit your personality. Ifyou are an impulsiveindividual, your style willreflectyourtradingstrategies.On the other hand, acalculating trader will waitfor all the indicators to fallinto place before making atrade. Your personality willdetermine your success or

failure more than any otherfactor.For example, if you are

greedy or fearful, that willaffect your trading decisions,andmorethanlikely,youwillbe wrong. Whenever I feelthe most greedy and have“walk-on-wateritis,” and feelI’m invincible, I must shortthis market. I feel that thevast majority of the world’sinvestors feel they areinvincible to any correction,

which is the ultimatecomplacency.Whenyoustartto feel invincible, watch out.You will go down like theTitanic. Discipline must winout or you are doomed tofailure.Finally, the primary

mindset must be survival.Unfortunately, most peopleexperience a mortal woundbeforetheyhaveacquiredthenecessarysurvivalskills.

Is there something elsesuccessfultradersmustdo?Yes. They must knowthemselves. Experiencedtraders can objectively listtheir strengths andweaknesses. Ifyoucannotbetrue to yourself, you willnever be true to anyone.Trading allows transparencyto the soul. The market willferretoutyourweaknessesbyseducing you into dangerousenvironments. The greatest

disease that is alwaysterminal is greed. Thatglaring sin is damning to anamateurtrader.Ihavewarnedmany aspiring traders thatlosingbuildscharacter,whilegreeddestroysit.

What is one of your mostimportantrules?The reason that I havesurvivedasatradersolongisthat I have an importantcredo:Thereisalwaysaway

to make money, and it’s atrader’s job to find it. I’vebeen through some difficulttrading environments but Iamdeterminedtosurviveandthrive.Thetruthis thatwhenI follow my business plan,suppress emotions, eradicategreed, and minimizestubbornness, prosperityfollows.This may not come as a

surprise but I love bearmarketenvironmentsbecause

volatility increases. I makethemajorityofmymoney inadverse situations. That iswhere you can make thegreatestwealth.Inthecurrentenvironment, you must beready to take a 180-degreeturn. Right now, it’s like weare going through a junglethat suddenly turns into adesert. That’s what couldhappen.I made my first million

dollars in 1987. I cleaned up

in 2000. And in 2008, adouble-digitpercentgainwasrecorded.Withover35yearsof trading experience, I haveseen this story before. Thenames and dates havechanged but the story is thesame.Ibelievethat2015andbeyondwill be rough for themarket,butgoodfortraders.

What are the biggestmistakes that new tradersmake?

First,beforeyoustarttrading,youmustdeflateyouregosothat you allow yourself tolearn. Another stumblingblock is laziness. There areno shortcuts in trading.Hardworkintradingtranslatesintogreater success. The harderyouwork the better youwillbepaid.

Do you have othersuggestionstohelptraders?Abusinessinvestmentplanis

an absolute must. The plancovers many specificsincluding the bestmarkets totrade, a profit objective, andrisk management with step-by-step instructions.The riskmanagement section alsoincludes different scenariosthat will help you no matterwhatthemarketenvironment.Missing steps is similar to atrapeze artist with amisplacedornonexistentnet.Oneslipanditisdeath.Also,

a business plan has a bigpicture approach to themarket. And finally, tradersmust be aware of theirpersonalities,whichwillhelpthem determine whatstrategiestouse.

Why is a business plan soimportant?A good business plan givesyou confidence that you areontherighttrack.Otherwise,you are playing it by ear,

whichisadisaster.Whenyoudon’thaveaplan,youtendtorelyonyouremotions,whichwill cause mistakes,especially with entries andexits. The goal is to enhanceyour strengths whileminimizingyourweaknesses.Withabusinessplan,youareless emotional about trading,whichallowsyoutofocusonthe facts rather than fear orgreed. Being prepared is thekey,whichiswhyabusiness

planisessential.

Has a business plan helpedyou?Absolutely. One of thereasons Iwon the 1992U.S.Investing Championship wasbecauseofmybusinessplan.I garnered a 563 percentreturn that year, minimizedlosses while maximizingprofitable opportunities. Andall of it was outlined in thebusiness plan. Now, I don’t

tradewithout a plan. It helpsgives me a big confidenceboost which translates intoharddollars.

How much profit should atraderexpecttomake?Thereisareasonableamountof profit that is available inevery trading environment.Expecting too much profitunleashes greed. If investorsthink in their mind theyshould achieve a pre-set

amount of profit, andaccepting it graciously, theyare maturing as a trader.Immaturity is obvious whenthey believe the profitobjectivewas reached, and itwas not enough! The moreyou want, the less you willreceive. The profit objectivewasreached,yet theperson’semotions allowed greed toask for unreasonableexpectations.

How can traders suppresstheurgetobegreedy?The first trade that tradersmake helps determine howthey will handle futureprofits. When I meet first-time traders, I tell them, “Ihopeyoulose.”TheresponseIgetisveryrevealing.Iftheyare angry or resentful, thatperson has a stubborn streakthat will be their Achillesheel.Iftheyareconfused,andreply, “Why do you say

that?” then the trader mightbewillingtoacceptcriticism,and have a trading career. Arational mind realizesprobabilities and lives bythem. A lottery ticket buyermentality is not dealing withprobabilities. Many smallgains are possible andprobable.Livewiththat truthandgreedwillsubside.

What’s a common mistakethattradersmake?

A very common mistake isinvestors are overexposed toequities when markets arecalm. Then when volatilityincreases, they are unwillingto participate. I have seeninvestorsbecomecomplacent,unconcerned about beingoverly exposed. I have heardcountless traders say, “I willreactwhenIshould.” Insteadtheybecomefrozenwithfearand fail to react at all. Theinvestment position turns

againstthem.Theydonotusehard stops,which is a recipefordisaster.

How hard is it to be atrader?It’sveryhard.Theworkethiccannotbeoverstated. Iwatchthemarket all day long fromtheopeningbelltotheclosingbell.Ihavekeptdiarieseveryday in themarket for the last30 years, sometimes with 40entries per day. If I do not

makeentriesinmydiary,mywork suffers. There is noshort cut in trading. Themarketwillquicklyfindoutifyouarelazy.

How do you prepare for atrade?You prepare by creating atrading plan. Start byplanning the worst-casescenarioandworkfromthere.Youarenevermoreobjectivethan before you execute a

trade.Onceyouareinatrade,your emotions take over, sothe plan must be in placebefore any activity takesplace.Whenyouhaveaplan,itwillhelptellyouwhenyouare wrong. You admit it, getout, and retreat.Live to fightanother day. Retreating is acowardlyapproachbutitwillkeep you from a trader’sobituary. I have beendiagnosed as terminal manytimes,andrehabilitationtakes

time, but it’s better thandeath, which is final. Onemore piece of advice: Neverallow a 50 percent loss on aposition, whether a trader orinvestor.Exitbeforeyoulose50percent.Acomebackfroma 50 percent loss to breakeven requires a 100 percentmove, which is highlyunlikely. Turn yourweaknessesintostrengths.

How do you turn

weaknessesintostrengths?Experienced traders knowtheir weaknesses. You haveto know where you’revulnerable. For example, I’mvulnerabletonewsitems,soIdon’ttradeonbreakingnews.It means understandingyourself as a person and atrader, and keeping a journalof your mistakes. Rememberthat it’s okay to makemistakes and haveweaknesses, but don’t keep

making the same mistakesover and over again. Thattakes experience anddiscipline.

I can tell you really lovebeingatrader.Tome,tradingisadreamjob.First, you can live and tradeanywhere in theworld. I callthis location independence.Second, you only have oneboss and that is yourself. Itteaches you to believe in

yourself, which is theultimate responsibility.Tradersdon’thavetheluxuryof relying on others to bailthemoutortotaketheblameforpoorfinancialdecisions.However, youwill receive

your just reward when youwork hard and make correctdecisions. No one will stealyour limelight or take creditfromyou.Youarethebossofyourpast,present,andfuture.You get to answer only to

yourself,nottosomeonewhoyoudon’trespectorlike.Thisisbossindependence.Finally, trading has no

salary restrictions. Literally,your earnings potential isinfinite. The decades I havetradedhaveprovidedmewithmore income than I couldhave made in any otherprofession.Themarket is theonlyrestrictiontotheamountofmoneytobemade.Thisisfinancial independence. I

needed something thatwouldchallengeme every day, andtrading did that for me. Ittookmealongtimetofigureitout.

Should traders get helpfromothers?Definitely. Would youconsider climbing Mt.Everest without a guide andtotallyalone?Absolutelynot!Unfortunately, many peopledon’t search for a trading

mentor,orevenobservethosewho are successful. Often,ego is the greatest barrier.Inexperienced traders believethey can startmakingmoneywithout taking the time topractice or even learn therules.Everyone who trades will

experience a period of angst.This environment will startslowly or abruptly change.These changes can endcareers if unknown to the

trader. This uncertainty alsocauses traders to makeimpulsive decisions that turnout to be wrong. A mentorhelps provide counsel andcomfortandhelpcalmnervesbyproviding insights or helpin assessing probabilities. Agoodmentorcanhelpsuggesta route that will bring thetrader back to financialhealth.Theywillhelptradersnavigate through treacherousminefields.

Anyfinalthoughts?My grandfather said to me,“If you buy what no onewants,andsellwhateveryonewants, you will never gobankrupt.” These words,which I ponder almost daily,shouldbe themottoof everytrader and investor. Thatsimple approach has guidedmethroughoutmycareer,butit took years for me tounderstand.Ialsolearnedthatthemorepeoplewhohavethe

sameopinion, thegreater theprobability the opinion iswrong.Unfortunately,onlyasmall

minority of people will beprepared to withstand thetyphoon of asset destruction.Even fewer will actuallyprosper. The bubble of 2015will be a historicalArmageddon. History willview 2015 and beyond as anera of excesses that wereunsustainable. When the

bubble bursts, a Pandora’sbox of horrors will bereleased. I say this not tocreate a panic, but to savefinanciallives.

ConclusionbyMichaelSincere

Mark Cook has witnessedseveral bear markets in hiscareer. Mark not onlysurvived these environmentsbut also profitably tradedduring the collapses of 1987,2000 and 2007. In all three,

investorswhoheldontotheirlong positions as the bearmarkets unfolded saw theirportfoliosgetcrushed.Mostinvestorswereunable

toheedthewarningsignsandget out before share pricesplunged. Many simply heldon until the bloodbath wasnearlyover.Thentheyfinallysurrendered and sold at ornearthebottomofthecrash.MarkandIwrotethisbook

to help you avoid making

these costly mistakes.Hopefully, reading theinterview with Mark hasenabledyoutounderstandthewarning signs that a bearmarket is imminent.Mark isconfident that these signshave becomemore andmoreclear.You may be wondering

whatyoushoulddonow.

1. First, you can disregardMark’swarningsandholdon

to your long portfolio. Therisk is that if Mark is right,your portfolio could declineby 20 – 30 percent or more.Are you comfortable takingthatgamble?

2. If you are unconvincedby Mark’s analysis andremain bullish, you couldkeep buying stocks. Shouldthebullmarketcontinue,youwill be very glad that youdisregarded his warnings.

However, if Mark is right,your losses will be evengreaterthanthosewhosimplyheldtheirlongpositions.

3. If you find Mark’sanalysis tobepersuasive, thewise thing to do is seriouslyconsider selling much or allyour stocks to lock in yourprofits. If you have specificpositions where you havepaper lossesofmore than10percent, you might want to

close out your positionsbeforeyourlossesmount.

Ifyoudosellsomeorallofyourstockstoosoon,youriskthe ridicule of your friendsand colleagues. Can youhandle that? Think aboutthose investors who did sellearly during those last threemajorcrashes.Theyprobablyhadthelastlaugh.

4.Thefinalchoiceistosell

your long positions andattempt to profit from thebear market plunge. Thiswould require another bookto discuss in detail (onesuggestion is to read mybook, Understanding Stocks2E),buthereareother ideas:Youmay sell short (only forexperienced traders), buynon-leveraged inverse ETFs,or buy put options. Keep inmindthatifyoudouseanyofthese strategies, you must

take profits quickly. Becausebear markets are so volatile,few investors make it to theWinner’s Circle. Now thatyouhaveread thisbook,youwillbebetterprepared.

Finally, I want to applaudyouforpurchasingthisbook.Itismyhopethatitwillhelpprotect you from what wethinkisanimminentfinancialbloodbath. Good luck, andfeel free to write me at

msincere@gmail.com if youhave any questions. I lookforwardtohearingfromyou.

AuthorBiographies

MarkD.CookMark D. Cook is a

professional trader. In 1986,he discovered the CookCumulative Tick (CCT),whichhelpedhimprofitfrom

the 1987 market crash andalso rise to fame in 1992,when he won the U.S.Investment Championshipwith a 563 percent auditedannual return. It was thehighest percentage in allinvestment categories. In1993, he followed up with a322 percent audited return inthe U.S. InvestmentChampionship.From 1992 until 1996, he

was a commentator in

Barron’s financial magazine,writingaboutoptions.ForbesMagazine profiledCook in a1994 feature story on histrading strategies. Cook hasalso been profiled ininvestment magazines inRussia and Australia, Stocksand Commodities magazine,Futures magazine, the WallStreet Journal, and SFOmagazine. He has alsoappeared on numerousfinancial programs including

Fox Business News. He alsowrites articles forMarketWatch.Cookwas also included in

thebest-sellingbookby JackSchwager, Stock MarketWizards. He was selectedafter Schwager reviewed hisaudited nine-yearperformance track record.Cook was the only wizardwho primarily traded S&P500indexfutures.In2001,Cookwasfeatured

onthecoverofActiveTradermagazine. He has also beenincluded in the followingbooks:PsychologyofTradingby Russell Wasendorf,ExtraordinaryComebacks byJohn A. Sarkett, Pit Bull byMartin “Buzzy” Schwartz,The Long-Term Day Traderby Deron Wagner andMichael Sincere, Inside theInvestor’s Brain by Dr.Richard Peterson, and WhenSuper Traders Meet

KryptonitebyArtCollins.Cook has privately

mentored and instructedthousands of students overthe last 20 years, helpingthem to become professionaltraders. He has authored theCook Investment Advisoryletter, a twice-daily e-mailthat is circulatedworldwide.Mark has spoken throughoutthe world including China,Australia, Mexico, Canada,Bahamas, and Singapore as

wellasyearsofpresentationsin the United States. Hecurrently welcomes any andall speaking engagements toeducate people on how totradeinallenvironmentsasacareer.You can reach Mark D.

Cook directly atcooktrading@yahoo.com.

MichaelSincereMichael Sincere is the

author of a number of

investmentandtradingbooks.As a financial journalist,Sincere has written hundredsof columns and magazinearticles on investing andtrading, including a monthlycolumn forMarketWatch.com. He hasbeen interviewed on dozensof national radio programsand has appeared on severalfinancial news programs,such as CNBC and ABC’sWorld News Now, to talk

abouthisbooks.He is the author of the

best-selling UnderstandingOptions 2E (McGraw-Hill),Understanding Stocks 2E(McGraw-Hill), All AboutMarket Indicators (McGraw-Hill),StartDayTradingNow(Adams Media), and PredicttheNextBullorBearMarketandWin(AdamsMedia).

Acknowledgements

We want to thank KeithJurow, author of theCapitalPreservation Real EstateReport, for helping to editthis book and providingusefuladvice.

We also want to thank Dr.

Martha J.B. Cook, author ofGrammar TowardProfessionalism, for helpingtoeditthisbook.