Felix Prehn on a New Bull Market

Early in a new cycle, the leaders are typically the sectors that were most punished in the preceding decline and the companies most sensitive to an improvement in credit and growth. Later, leadership often rotates towards quality and earnings growth. Watching where leadership sits is one way of estimating how far a cycle has progressed.

Policy is the other input. Bull markets have historically begun while economic news is still poor, because markets respond to the change in the rate of deterioration and to central bank easing rather than to the level of activity. Waiting for the economic data to confirm the recovery has historically meant missing a substantial part of the early advance. The Goat Academy insights on reading rate decisions and the yield curve discuss this in detail.

• Anchoring to the low. Investors who missed the bottom often wait for a return to it, which may never come, and end up buying much higher after the evidence is undeniable.
• Fighting the trend on valuation alone. Markets can remain expensive for years in a rising regime. Valuation is a poor timing tool.
• Chasing the narrowest leaders. Buying only the stocks that have already risen most concentrates risk in the part of the market most vulnerable to a rotation.
• Abandoning risk management. A rising market rewards leverage until it stops, and it stops without warning. Position sizing rules should not change with the regime.
• Confusing a bear market rally with a new bull market. Sharp rallies within a decline are common. Breadth and credit help distinguish them from a genuine change.

In a confirmed rising regime, Felix's framework shifts in three ways. Pullbacks are treated as opportunities to add to positions at defined levels rather than as warnings. Exposure moves towards the sectors that are leading rather than those that are cheapest. And the time horizon for holding winners lengthens, with exits driven by a change in the regime rather than by a price target.

What does not change is the discipline: written rules, position limits, and a review process that runs on a schedule. Felix uses Winston, the market intelligence tool he developed, to track the breadth, credit, and policy indicators that inform the regime assessment each day. The Wall Street Protocol teaches the full framework, including how to recognise the transition from one regime to the next.

Nothing on this page is a forecast. Regimes can reverse, and a framework for recognising a bull market is not a promise that one is under way or will continue.