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Bull vs. Bear Market Impulses: How Observing Water Freeze Leads to a Shocking Discovery about Social Mood

A Boston University econophysicists's "switchless switch" is a great model for what happens when markets transition from bull to bear and vice versa

by Bob Stokes
Updated: July 25, 2016

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 [Editor's Note: The text version of the story is below.]

As the stock market transitions from a major uptrend to an inevitable downtrend, the culture expresses a mixture of bull and bear market impulses.

For example, in a May 3 article titled "The Economy Is Great; the Economy Is Terrible," the Atlantic says:

The top 1 percent saw its disposable income grow by 11 percent. Everybody else got close to nothing. For the bottom 99 percent, income actually declined through the first five years of the recovery.

The mixture is also evident in real estate. On one hand, the bull market impulse to construct the world's tallest building is alive and well as property developers in Dubai and Saudi Arabia vie for the honor. On the other hand, Dubai apartment prices fell 11% over the past year. Moreover, the U.S. housing market is sliding downward from a much lower high than its prior peak.

Another example is the opposing impulses in the stock and art markets. Even as the Dow marched toward new highs, a major auction house saw a setback. A July 20 Financial Times headline says:

Christie's sees art sales fall 27% in first half of 2016

Interestingly, this transition phase mixture has a parallel in nature: water's transformation into ice.

Boston University econophysicist Eugene Stanley describes the process as "switching without switches."

The May Elliott Wave Financial Forecast elaborates:

The chart from [Dr.] Stanley's presentation shows how the properties of water vacillate dramatically between those of a liquid and those of a solid in the final nanoseconds before it completes the transformation into ice. Until modern times, Stanley says physicists believed the switch was instantaneous. "I was taught the system's in one phase or the other phase. As we see here, the system jumps from being mostly one phase to mostly another, then goes back. It doesn't just all of sudden crash from liquid at 0.9 to solid at 1.0. This was a huge shock to me."

Stanley further contends that the model applies to "human relations." ... [His] switchless switch strikes us as a great model for what happens at a large degree reversal from a bull market to a bear market in social mood.

As you might imagine, when the market's transition phase is complete, the mixture will disappear and bearish impulses will be fully evident.

Now is the time to prepare for what we expect to be a once-in-a-lifetime juncture.

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