By Andrew Mickey
When someone says, “it’s different this time,” what happens next is rarely surprising.

We know it’s never different this time. The thing is though it takes a bit of time to remember that.

For instance, the implicit “it’s never different this time” promise is the biggest problem facing the Democrats push for healthcare reform. It’s a new entitlement program. And history has proven time and again, in its current form the odds of it reducing costs, increasing efficiency, and making the healthcare system better for consumers are pretty slim. It’s really only a matter of time until the well-documented consequences of the reform are realized.

As the polls have shown, the more time that passes, the more folks realize odds are it won’t be different this time.

Apple Computer has adjusted its advertising focus in hopes of reminding consumers it’s never different this time too. The company which has built its business around knowing what their customers really want knows consumers know it’s never different this time. And they’re opening up the war chest to remind consumers of exactly that.

In response to the Microsoft’s Windows 7 launch, Apple has quickly countered with an ad campaign aimed at the implied “it’s different this time” promise. With all the buzz and excitement surrounding the Windows 7 launch, Apple knows it’s easy to forget that it won’t be different this time. Apple is merely taking the opportunity to remind consumers of what they already know, but occasionally forget.

We could go on forever, but you get the point. That’s why we’re taking a step away from the “it’s different this time” crowd and taking a look back at how bear market rallies work and how to navigate them successfully.

Three Stages of a Bear Market Rally
In April it was clear we were in an incredibly strong rally. At the Prosperity Dispatch, we pegged it as a rally you would want to ride all the way to the end. And it would last far longer than most expect.

We also knew it would be a highly emotional ride. After all, when you’re making 20% or more each month, the common mistake is to sell too early. It’s easy to do. The natural desire to sell for a quick profit is a strong one. But history has shown the biggest gains will be made by those that ride out a trend for all it’s worth.

In mid-April we took a historical look at the Three Stages of Bear Market Rallies, how they begin, how they last until the last bear finally gives in, and specific warning signs to look for to know when it’s coming to an end.

Here are three stages of bear market rallies we identified. As you’ll notice, at the end, all signs point to the current rally coming to an end sooner than later.
Stage 1: “This will never turn around.”

The first stage of a bear market rally starts when we get the first signs of a turnaround. This happens when everyone thinks it will never turn around. We hit that point in early March. Since then the markets have been so beat up in such a short period of time that any bit of good news can get things rolling higher again.

As the “Obama rally” turned into a sucker’s rally, each passing week brought progressively worsening economic news. There was nothing to look forward to. Expectations were low and headed lower.

We hit this point in March and once the market started moving up on “not as bad as expected” news, it was clear a bear market rally had begun. And since the S&P 500 was down more than 55% from its 2007 highs, the set-up was in place for an extended, sharp, and lucrative rally.

Stage 2: It’s a Bear market rally, “The easy money has been made.”

This is the stage where you’ll see most commentators admit we’re in a bear market rally. Many of them freely cite some warning about the coming rally they issued and it was to be expected. Most of them go on to warn this is a bear market rally and advise against buying now.

By May 9th, two months into the rally, the S&P was up 36%. That’s a decent return for two years in a good market. In two months, it’s downright fantastic.
By this time no one could deny the rally was real. Anyone, however, could quite easily make a case where the rally had gone too far, too fast and it was too late to get in.  Continued...