InSight

Financial Planning Dentist

InSight
Finacial
Planners

Menu

Market InSights:

When does a Bear look like a Bull? (Pt. 1)

Four things to avoid and four things to embrace when the Bear turns into a Bull.

 

A Bear Rally is a short, swift, updraft in stocks that can end as quickly as it began. Here are the four signals to avoid.

Markets will routinely go through bouts of extreme buying during a bear market. There are several fundamental and technical reasons why markets “rally” at these times amid broader weakness in the market. The market this time has just come off its 4th bear market rally of the 2022 selloff.

Boulder Colorado Investment Management
All Four Bear Rallies

These “false” turnarounds can be frustrating to the casual observer. A feeling that the market is random and chaotic can lead people to become frustrated during these moments of euphoria, only to be quickly rebuffed by another violent selloff.

At some point, these turnarounds stay intact and the Bear market rally is seen for what it is, the beginning of the next bull.

Here are some of the important topics to keep in mind to determine if we are looking at a new Bull, or another Bear.

Markets are Money with Emotion – Bear Rally (4)

If markets were perfectly logical they would be rather dull. If smart people reached the same conclusion regarding the future value of dollars (inflation), corporate revenue (earnings), and cost of capital (debt) then the auction that is the market would see a very narrow band of trading. But, it’s not, there is a maelstrom of emotion that accompanies markets and this market is no exception.

Boulder Colorado Investment Advisor
Bear Market Rally Four

The rally from the June lows, to the most recent selloff, started at the Fed meeting in June and ended in mid-August (Bear Rally 4). The “Dovish Pivot” was the culprit – the belief that a small part of Jerome Powell’s update in June was dovish, and the “feeling” that the rate hiking cycle would come to an end sooner. This was both a fundamental shift in markets and an emotional one. One that we at InSight, didn’t share. We either didn’t hear this new dovishness, or we didn’t believe in it. 

This Bear rally was an abrupt reversal of the trend based on emotion, which you might assume is not a reliable and lasting reason for markets to change course, and you would be right. These good times were quickly brought to an end with more commentary from fed chairs and economists in August and were fully doused by Powell’s speech on September, 21st.

Trading markets on emotions is hard, and for that, we look for momentum to confirm our emotions and use the MACD reading to understand when emotional buying has turned into momentum buying. We try not to fight the momentum in markets.

The “Narrow” rally – Bear Rally (2)

When markets turn around, it happens quickly, and no one wants to “miss out” on the bottom. This causes abrupt buying at symbolic (not fundamental) levels or in single stocks or sectors. Some stocks serve as a bellwether for markets, Trains, Chips, and Logistics companies can tell us when the market is healthy and the supply chain orderly. But when one group of stocks march higher alone, it is likely a false rally and they will routinely be brought back with the border market.

The US Technology Index registered a bear market on March 14 when it closed down 19.8% from its peak on Nov. 22. The index then zipped higher, gaining 17.3% as of March 29 before resuming its downward trend. The index lost 27% between its March 29 close and its June 16 low.

boulder financial planning experts expert portfolio management
Bear Market Rally Two

There was a “buy the dip rally” in a Bull Market for well over a decade. So, traders and investors have been conditioned to buy up markets trading on lows. Markets registering short-term (1 and 3 month lows) have been quickly reversed since the financial crisis.

The great financial crisis ushered in an era of seemingly unlimited accommodation from the Fed and every dip was met with more and more liquidity from investors and the government. Operating in unison, the market drawdowns were short, and bull rallies were profitable.

The Bear Rally (2) of this cycle was met with no such injection from the Fed and the rally petered out when traders ran out of money. This reversal was confirmed as the market headed lower from Bear End (2) into Bear Start (3). A lack of dry powder meant there was less capacity to continue buying up the market. 

There was no confirmation in the rest of the market, and it was proof that while technology is the most important sector in the SP500, it alone cannot fix weaknesses in other market sectors.

Oversold conditions cause “snapbacks” – Bear Rally (1)

Beware of Oversold conditions that cause bear-market rallies. This is also known as a bear trap, a sucker’s rally, or a “dead cat bounce.” Frequently bottoms are found when conditions on the Relative Strength Index (RSI) reads “oversold” so traders and investors misinterpret these as bottoms, especially early in a bear market. The Bear Rally (1) is a good example of this:

Boulder Colorado Investment Management
Bear Market Rally One

A phenomenon in bear market rallies is the snapback or dead-back bounce. When stock prices deteriorate so quickly, the oversold conditions are met, and the traders look to profit off the short-lived really to come. Oversold conditions are routinely bought up quickly – but they are quickly reversed when the longer trend catches up with the short-term trend. Oversold, or overbought conditions are usually reached when a chart favors the bias of a daily trend over a weekly trend. 

Rallies based on “oversold” conditions very rarely last longer than a couple of weeks. 6-15 trading days at the most, before the more powerful long-term trend, exerts its pressure over the short term.

Continued in Part 2: When does a Bear look like a Bull? What to Look for

More related articles:
Articles
Carly Powers

Navigating the New Student Loan Repayment Landscape: RAP vs. IBR and Standard Plan Changes Under the One Big Beautiful Bill Act

The One Big Beautiful Bill Act (enacted July 4, 2025 as Public Law 119-21) significantly reforms how federal student loan repayment works. One of its central goals is to simplify repayment options and adjust income-driven plans. Key among its changes are the introduction of a new income-based plan called the Repayment Assistance Plan (RAP), alterations to the Income-Based Repayment (IBR) plan, and an overhaul of the Standard Repayment Plan. The New RAP vs. IBR The RAP is a newly created income-driven repayment option under the OBBBA. It becomes available starting July 1, 2026 for new borrowers, and existing borrowers will be able to opt into it or be moved into it under certain conditions by July 1, 2028. How RAP works: Payments under RAP will be calculated as 1% to 10% of the borrower’s adjusted gross income (AGI). The rate increases with income. There is a minimum payment of $10 per month, even for very low-income borrowers. Borrowers receive a $50 per dependent reduction in the payment base each month. The repayment term for forgiveness under RAP is 30 years (i.e. after 30 years of qualifying payments, any remaining balance is cancelled). Other favorable features: Under RAP, interest that accrues but is not covered by a borrower’s monthly payment will be waived; and if the monthly payment reduces principal by less than $50, the government will make up the difference (to ensure slow but steady reduction) in some cases. How IBR is changed: The requirement of a “partial financial hardship” is eliminated. Previously, to enroll in IBR a borrower had to show that their payment under IBR would be lower than under the 10-year standard plan; that condition is removed. There are two versions of IBR depending on when one took out one’s first federal student loan: Loans taken out before July 1, 2014 use the “old” IBR: payments are 15% of discretionary income and forgiveness occurs after 25 years. Loans taken out on or after July 1, 2014, but before July 1, 2026, use “new” IBR: payments are 10% of discretionary income and forgiveness after 20 years. IBR retains its place among the remaining income-based plans; under OBBBA, most of the other income-driven plans (SAVE, PAYE, ICR) are being phased out by July 1, 2028, leaving IBR plus RAP. Changes to the Standard Plan The Standard Repayment Plan, which is the fixed payment plan not tied to income, is also amended for loans disbursed after July 1, 2026: The repayment term will vary based on the total amount borrowed. Roughly, less than $25,000 = 10 years; $25,000–$50,000 = 15 years; $50,000–$100,000 = 20 years; over $100,000 = 25 years. For Parent PLUS loans issued after that date, borrowers must use the Standard Plan. RAP is not available for new Parent PLUS loans or for some consolidated loans involving Parent PLUS. Impacts and Considerations This restructuring means borrowers will face trade-offs: Those with lower incomes may benefit from RAP because of the low payment floor ($10), waived interest accrual, and longer forgiveness timeline. But longer forgiveness means more total interest unless interest is significantly subsidized. Higher-income borrowers may prefer new IBR, especially if they are closer to the earlier forgiveness schedule (20 or 25 years) rather than 30 years under RAP. Borrowers currently enrolled in SAVE, PAYE, or ICR will need to transition by July 1, 2028, or else be placed in RAP automatically if they don’t choose. Eligibility changes (e.g. removal of partial financial hardship) may allow more borrowers to qualify for IBR. In summary, the One Big Beautiful Bill Act seeks to simplify the repayment structure: phasing out multiple existing income-driven plans (SAVE, PAYE, ICR), leaving primarily IBR and the new RAP for income-connected repayment, alongside a reformed Standard Plan. Borrowers will need to consider their income, how long until forgiveness, and how the changes affect interest accrual when deciding which path to choose. These changes are phased in over time (particularly in 2026 and 2028), so understanding the timelines is critical for borrowers who want to preserve favorable repayment options. Additional Resources Federal Student Aid, “Federal Student Loan Program Provisions Effective Upon Enactment Under One Big Beautiful Bill Act” (Dear Colleague Letter). (FSA Partner Connect) Brighthorizons / EdAssist, “Impacts Federal Financial Aid and Student Loan Borrowers …” (Bright Horizons) NASFAA, “Federal Student Aid Changes from the One Big Beautiful Bill Act.” (NASFAA) Investopedia, “The ‘Big, Beautiful Bill’ Changes Student Loan Repayment …” (Investopedia) StudentLoanBorrowerAssistance.org, “Big Bill Means Big Changes For Student Loan Borrowers …” (Student Loan Borrowers Assistance)

Read More »
October 2, 2025 No Comments
Articles
Kevin Taylor

Tax Mitigation Playbook: Allowable closing expenses in 1031 Exchanges

Selling and buying a home is full of fees, expenses, and individual line items that can confuse the process and generate much of the closing paperwork. When selling or purchasing an investment property in a 1031 exchange process, certain selling expenses paid out of the sales or 1031 exchange proceeds will result in a taxable event for the exchanger. The IRS is very clear about many of these costs of selling a property, for example, routine selling expenses such as broker commissions or title closing fees will not create a tax liability.  Inversely most operating expenses paid at closing from 1031 proceeds will create a tax liability for the exchanger. The IRS, over time and in several notes, instructions and guidelines has made the following clear: Allowable closing expenses for IRS 1031 exchange purposes are: Real estate broker’s commissions, finder or referral fees Owner’s title insurance premiums Closing agent fees (title, escrow, or attorney closing fees) Attorney or tax advisor fees related to the sale or the purchase of the property Recording and filing fees, documentary or transfer tax fees Closing expenses that result in a taxable event are: Pro-rated rents Security deposits Utility payments Property taxes and insurance Associations dues Repairs and maintenance costs Insurance premiums Loan acquisition fees: points, appraisals, mortgage insurance, lenders title insurance, inspections, and other loan processing fees and costs To reduce the taxable consequences of these operating, financing, and other closing fees, try to: Pay security deposits, pro-rated rents, and any repair or maintenance costs outside of closing, or deposit these amounts in escrow with the closing agent. Treat accrued interest, prorated property tax payments, or security deposits as non-recourse debt that the exchanger is relieved of on the sale of their old property, which could be offset against the debt assumed on the replacement property. Note: this would only work if mortgage debt is obtained on the replacement property purchase that exceeds the mortgage debt paid off on the sale of the relinquished property. Match any prepaid taxes or association dues credited to the investor against the unallowable closing expenses listed on the settlement statement. Check with your tax advisor prior to the closing to review the closing settlement statements to determine if there is an opportunity to avoid a taxable transaction in your 1031 exchange. It’s possible that an exchanger has a long-term loss carry forward or non-recognized passive operating losses that could offset the taxable amount. Please note that all material provided in this newsletter is for informational purposes only and the author is not providing legal, tax accounting, or other professional services. The accuracy of the information provided as it pertains to your situation is not guaranteed. Please seek professional consultation if legal, tax accounting, or other expert assistance is required.

Read More »
July 18, 2022 No Comments
boulder colorado financial advisors, financial planning and risk management
Articles
Kevin Taylor

Section 1031 Exchange and Your Primary Residence: How They Can Work Together

When it comes to a 1031 exchange, your primary residence is generally excluded. According to the rules of Section 1031 of the Internal Revenue Code (IRC), property used for personal purposes, like a primary residence, doesn’t qualify for tax deferral. The law only applies to properties that are “held for productive use in a trade or business or for investment.” However, there are situations where your primary residence is part of a property with business or investment land, and in these cases, a Mixed-Use 1031 Exchange may apply. Mixed-use property and a 1031 Exchange A mixed-use exchange happens when the property being sold includes both a primary residence and land or structures used for business or investment purposes. Part of the property may qualify for a 1031 exchange in these scenarios, while the residential portion could be eligible for Section 121 benefits (more on that in a minute). Examples of mixed-use properties include: A home office where a business rents space in your house. A farm or ranch where you work the land as a business but live on the property. A duplex where you live in one unit and rent out the other. A single-family home with an accessory dwelling unit (ADU) that you rent out while living in the main home. As long as part of the property is used for business or investment, it could potentially qualify for a mixed-use 1031 exchange. The IRS Code: Section 1031 and Section 121 Here’s the breakdown: Section 1031 allows you to defer capital gains taxes on properties used for business or investment when you exchange them for similar properties. Meanwhile, Section 121 allows homeowners to exclude up to $250,000 ($500,000 for joint filers) of capital gains on the sale of their primary residence if they’ve lived there for at least two of the last five years. So how do you take advantage of both sections? It’s all about identifying your “principal residence”—which is typically your primary home (not your vacation home). Your primary residence can also include parts of a property that are used for business or investment. Key Questions About Combining Sections 1031 and 121 How is the Section 121 exclusion calculated? The calculation of the exclusion for your primary residence involves determining the original purchase price of your home, the cost of improvements, and the value of the residential portion of the property being sold. You can determine the value with a market analysis from a realtor or an appraisal. For joint filers, the exclusion can be up to $500,000, while single filers get a $250,000 exclusion. A common issue arises when a property has both a personal residence and a 1031-eligible business portion, and no value is explicitly allocated between the two. A current market analysis or other valuation methods can help. Consider factors like the per-acre value of the residential part compared to the larger investment property and the home’s insurance value. How is the homesite defined? When valuing the residential portion of a mixed-use property, it’s helpful to think of the land and features that contribute to your enjoyment of the home—this could include gardens, septic systems, small pastures, and more. Using aerial photos is often a smart way to determine the homesite’s boundaries and help make the valuation more precise. A Hypothetical Example Let’s walk through a simple example: Total sale price: $2,500,000 Residential portion: $800,000 Basis in the primary residence: $300,000 Section 1031 portion: $1,700,000 In this case, the primary residence portion is valued at $800,000, so the taxpayer could exclude the gain on that amount (up to $500,000 for joint filers, $250,000 for singles). Applying the 121 Exclusion to Debt Payoff One of the benefits of using the Section 121 exclusion is that you don’t have to reinvest the sale proceeds in another property. If there’s debt associated with the property, the Section 121 exclusion can help cover the debt payoff. In our example above, if the taxpayer owes $500,000 in debt, they can apply the 121 exclusion to cover that, meaning they don’t need to replace the debt with new debt in the 1031 exchange portion of the transaction. How is the 121 Exclusion Documented? The key to documenting the allocation of proceeds is ensuring there’s a clear separation between the 1031 exchange portion and the personal residence exclusion. The settlement statement from the sale will have line items showing both: one for “cash to exchanger (personal residence)” and another for “exchange proceeds to seller” (handled by the qualified intermediary). When Doesn’t Section 121 Apply? Section 121 won’t work if the property is part of a business held by a corporation or partnership—since these entities can’t own a primary residence. However, if you’re an individual or a disregarded entity like a single-member LLC or sole proprietorship, you can use the exclusion. It’s also possible to distribute the personal residence out of a business entity before the sale, but you’ll need to plan ahead—this needs to happen at least two years before the sale. Final Thoughts The Section 121 exclusion can give you a significant tax break by putting cash in your pocket without the need to reinvest. For mixed-use properties, taxpayers can use the Section 121 exclusion for the residential portion of the sale, while using Section 1031 for the business or investment portion. Keep in mind, though, that when participating in a 1031 exchange, your intent must be to hold the replacement property for productive use or investment in the long term. It’s crucial to consult with a tax or legal advisor when structuring a 1031 exchange or when considering any changes to your investment property.

Read More »
February 25, 2025 No Comments

Pin It on Pinterest