Although the psychological characteristics are interesting, we can turn to chart examples to examine more concrete factors.
There are different ways to define a normal bull market technically, but the best way is simple observation. While a bubble’s key characteristic is a parabolic move, bull markets can have parabolic moves as well. One reliable method is utilizing Andrews’ pitchfork. Many bull patterns in various time frames will stay close to the confines of the upper channel.
Consider a weekly chart of the S&P 500 index (see “Steady rise,” above). During the bull market from 2002-07, it stayed within the upper channel until the end. It also never strayed far from the 50-week moving average. By contrast, “Fast runner” (below) shows the housing stock Lennar Corp. from 1999 until the stock split in January 2004. Already we can see a move far away from the Andrews’ channel and the 50-week moving average. The stock peaked at $68.86 in July 2005, which is pre-split price of $137.
If straying from a standard Andrews channel can be a clue a bubble has materialized, then we also might grow wary from a pattern that requires multiple Andrews’ channels to complete. By itself, this probably isn’t a strong enough signal, but when combined with the psychological aspect of market participants, it can contribute to a fuller understanding.