Starting the New Year in a bear market.

The calendar year 2012 starts with stocks in a bear market. It is not stocks alone, other asset classes such as gold, silver and real estate (in most cities) are also seeing decline or consolidation in prices.

For the stock market, it is quite possible that the year 2012 may actually bring good news to the bulls. The current bear market started in Nov 2010. Bear markets seldom last for more than 2 years, in fact they end in anything between 12 to 18 months. If we follow the same pattern, we are probably seeing the last Phase of the bear market. Surely, this is good news for bulls?

For investors, cash is king. Money can be deployed in the best blue chip stocks on an SIP – which is a systematic investment plan, in which regular investments are made usually once a month. Investors should NOT attempt to dabble in mid cap or small cap stocks. It is too early for such investment.

For traders, the nature of the market (bull or bear) is much less relevant. Trading is done based on setups. The main difference is in position sizing. Usually, bull markets offer larger rewards and remain easier to trades in. Therefore, positions increase in size when trading within bull markets.