Investors are always looking for the next “big thing.” In the late 90s, technology was the opportunity of the decade. From 1995 to 2000, the Nasdaq soared from below 800 to above 5,000. From 2002 to 2007 the S&P 500 (NYSEArca: SPY) and Dow Jones (NYSEArca: DIA) nearly doubled. Real estate prices in some areas more than quadrupled, while broad based real estate ETFs like the SPDR Dow Jones REIT ETF (NYSEArca: RWR) and iShares Dow Jones US Real Estate ETF (NYSEArca: IYR) nearly tripled from 2000 to 2007.

If you missed out on any of the above mega themes, don’t sweat it. The Nasdaq (Nasdaq: QQQQ) has since plummeted, as did the Dow and S&P. Real Estate ETFs have given up all of this century’s gains.

Where is the next bull market?

An old Wall Street adage says that there is always a bull market somewhere. As it turns out, this is yet another piece of Wall Street wisdom that has been proven wrong. In 2008, the only bull market to be found was in short ETFs. The key question is whether investors should be looking for the next new bull market, or get used to a prolonged bear market while figuring out how to prosper along the way.

According to ETFguide’s analysis, the bear market is not over yet. Does the recent rally invalidate this conclusion? No, to the contrary, it actually confirms what the ETF Profit Strategy Newsletter, a newsletter dedicated to identifying profit opportunities, foretold previously in early 2009:

“The best target for this temporary low is 6,700 for the Dow and 700 for the S&P 500. Extreme pessimistic sentiment may drive the indexes even towards Dow 6,000 and S&P 600. A multi-month rally founded on this low should lift the markets by 30-40%.” The market bottomed at Dow 6,440 and rallied more than 30%. Is the bear market over?

The mega trend in equities

During the Great Depression, the Dow Jones dropped a total of 89%. This decline happened in six stages and included four down-sequences, each with recorded losses of 40% or more. Of course, no two bear markets are alike. Nevertheless, this statistic confirms what long-term indicators such as P/E ratios and dividend yields are telling us (more about that later).

In his book The Great Crash, John Kenneth Galbraith writes concerning major market declines: “The descent is always more sudden than the increase; a balloon that has been punctured does not deflate in an orderly way.”

The September/October 2008 decline in financial stocks, as represented by the Financial Select Sector SPDRs (NYSEArca: XLF), truly displayed “punctured-balloon-like” features. The SPDR KBW Bank ETF (NYSEArca: KBE), along with the market in general, got to feel the “wrath of the needle.”

This counter trend rally does not seem complete just yet. Higher prices brought on over the next weeks/months, will be a good opportunity to sell equities at respectable prices and accumulate short ETFs. A complete list of short ETFs, categorized by style and sector, is available via the ETF Profit Strategy Newsletter.

The mega trend in bonds

From the 1980s to today, Treasury bonds have seen a transformation from investment wall flower to investment pop-star. After some 30 years, even this bull market has reached a point of exhaustion. 30 year Treasury prices have dropped about 30% over the past six months, while yields have shot from 2.5% to over 4%.

Standard & Poor’s lowered its outlook on Britain’s debt from “stable” to “negative.” The recent performance of long-term T-bonds reflects investors’ fear that the U.S. is in danger of losing its AAA rating. The government’s recent spending spree, of course, did not alleviate those concerns.

Long-term T-bond ETFs, such as the iShares Barclays 20+ Year Treasury Bond ETF (NYSEArca: TLT), are much more sensitive to such changes compared to the short-term iShares Barclays Short Term Treasuries ETF (NYSEArca: SHV).

Investors looking for avenues to profit from falling long-term Treasury prices may want to consider the UltraShort 20+ Year Treasury ProShares (NYSEArca: TBT), Direxion Daily 30-Year Treasury Bear 3x Shares (NYSEArca: TMV), or simply buy put options on TLT.

Along with equities, corporate bonds have seen a revival over the past few months. Don’t allow yourself to be fooled by rosy news or enticed by high yields. Just as stocks, the performance of corporate bonds is linked to a company’s health. As companies continue to struggle with a declining economy, corporate bond defaults will increase.

The mega trend in commodities

In early 2008, commodity ETFs were viewed as a must have for every portfolio. Nearly all diversification models included a 10-20% allocation to commodities. Contrary to popular belief, commodities did not deliver (at least not for long) the hoped for performance. Commodities, just like equities, topped in 2008 and tumbled ever since.

The iShares S&P GSCI Commodity ETF (NYSEArca: GSG) and PowerShares DB Commodity ETF (NYSEArca: DBC) lost between 60% and 70% in less than a year. More recently, due to their alleged inflation resistant properties, commodities have seen another small resurgence. As long as more wealth gets destroyed (some $20 trillion in 2008) than the government can print money, deflation will trump inflation. During a deflationary depression all asset classes lose value, including most commodities.

Gold might be one exception. Even though gold is due for a somewhat significant pullback, it will take on a more significant role over the coming years.

Investors can buy ETFs such as the SPDR Gold Shares (NYSEArca: GLD), iShares Gold Trust (NYSEArca: IAU), and iShares Silver Trust (NYSEArca: SLV) to benefit from rising gold prices. Before you buy, keep in mind that lower prices in gold and silver should be forthcoming (read related forecast for the gold ETF here).

A look at the performance of different asset classes shows that we’ve entered a deflationary depression, a condition similar to the Great Depression. During a deflationary depression, all assets lose value (deflate). Conversely, the money (dollars) you get to keep goes further and thus increases the value.

Will the bear market continue

Contrary to news – which is good at the top and bad at the bottom – indicators originating from the stock market give us an accurate forecast.

Since the 19th century, no major market bottom has been reached unless P/E ratios and dividend yields clocked in at rock bottom levels. P/E ratios and dividend yields are an indication of true value. An overvalued stock market does not bottom just as a piece of iron doesn’t float.

Yes, those indicators signal that lower prices are ahead. The bull market in cash and short ETFs is likely to resume before year’s end. The March and June issue of the ETF Profit Strategy Newsletter contained a detailed analysis of P/E ratios, dividend yields, and two other trusted indicators along with target levels for the ultimate market bottom and the end of this rally. At times, investors have to create their own portfolio’s bull market.