What is a 'Bear Tack'

A bear tack is a shift toward a bearish market sentiment or a drop in the value of a stock, sector or market that may signal the start of a downtrend.

Breaking Down 'Bear Tack'

A bear tack is of interest to investors and analysts it may precede a significant price correction. If the asset or market goes on to drop by 20 percent, it officially enters a bear market. While investors associate a bear tack with an imminent downturn, the term does not necessarily imply that the speaker believes that a major correction is coming. In that way, the phrase bear tack can describe a market phenomenon without making a specific claim as to its significance.

Tacking is a term from sailing that refers to a maneuver in which a boat zigzags in the water to reach an upwind destination. The phrase bear tack refers to an analogous shift in the direction of a financial trend, one which investors may need to react to, just as a sailor adjusts to changing conditions.

When a Bear Tack Signals a Trend Reversal

The longer the bullish period that precedes the bear tack, the more likely the bear tack signals a meaningful shift in investor sentiment, spurring a trend reversal. A trend reversal is even more likely if the fundamentals of a stock, sector or market are already deteriorating.  

For example, a bear tack in two major market indicators preceded the Great Recession. The S&P 500 and the Dow Jones Industrial Average both dropped by 5 percent after a sustained period of growth culminating in record highs in late 2007. The two bear tacks suggested a larger market correction was imminent because of the context in which they appeared.

What a Bear Tack Means for the Passive Investor

Responding to a bear tack is only an issue for investors employing active investing strategies, using complicated analysis and frequent trades to beat the market. Passive investors prefer to earn market returns and move their money as infrequently as possible. Most of the time, a passive investor would not react to a bear tack by selling off a position or initiating a hedge because that investor has decided to ride out market downturns.

When passive investors panic and sell off their positions in a down market, they risk undermining their passive strategy by selling low instead of holding on until the market recovers. Before evaluating market signals, including bear tacks, investors should understand their overall investing strategy because that determines if and how one should react to changing market conditions.

  1. Bear Fund

    A bear fund is a mutual fund designed to provide higher returns ...
  2. Bear

    An bear is an investor who believes that a particular security ...
  3. Dollar-Bear

    A dollar-bear is a forex trader or speculator who is using a ...
  4. Passive Investing

    Passive investing is an investment strategy to maximize returns ...
  5. Market Swoon

    Market swoon is a buzzword for dramatic, sudden decline in the ...
  6. Bear Raid

    A bear raid is the illegal practice of colluding to push a stock's ...
Related Articles
  1. Investing

    Don’t Panic When the Next Bear Market Happens

    Take advantage of the next bear market and watch your investment in great companies grow.
  2. Investing

    How to adjust a portfolio in a bear or bull market

    Investors shouldn't panic at the market's daily moves, but small adjustments in the face of a bull or bear market could be a prudent move.
  3. Investing

    Passive Investing Beats Active in a Bear Market

    Think active management can come out ahead of index investing at least during a bear market? A performance review suggests otherwise.
  4. Investing

    Bear Market Mutual Funds Are Attracting Investors (BEARX, GRZZX)

    Bear funds take short positions on the market and profit when prices go down.
  5. Investing

    Top 5 Bear Market Mutual Funds (GRZZX, BEARX)

    Discover five bear market mutual funds that investors can turn to for generating maximum capital appreciation during a bear market.
  6. Investing

    Why a 10% Stock Drop Will Feel Like a Bear Market to Investors

    Spoiled rich: Many investors are psychologically unprepared to deal with a long-overdue correction.
  7. Investing

    Why the Sell-Off Is a Correction, Not a Bear Market

    Despite fears that a bear market is underway, factors suggest no more than a temporary correction.
  8. Trading

    What is a Bear Call Spread?

    A bear call spread is an option strategy that involves the sale of a call option and simultaneous purchase of a call option on the same underlying asset.
  9. Trading

    The Elder-Ray Indicator: Seeing Into the Market

    Elder-ray helps determine the strength of competing groups of bulls and bears.
  1. Are We In A Bull Market Or A Bear Market?

    Rising price signifies a bull market while falling price signifies a bear market but the devil is in the details.. Read Answer >>
  2. How do you use put options to profit from a bear market?

    Learn how traders use put options in their trading strategies to remain profitable, even in a bear market. Everyday investors ... Read Answer >>
Trading Center