It seems to have been a long, drawn out bear market. Some would say this started a year ago, others point to twenty months ago when the first shot on the bow was fired. Whatever the case, the market has been decimated. But is the cart before the horse? I looked at some past bear markets and noticed one recurring pattern: The markets overshot to the downside each time. Perhaps this is happening now.

A Sign Banks Are Getting Less Risky

I look to some passive, anecdotal evidence at times to see if tides are turning. Even the most subtle information can give a big picture clue. Let's take a look at the banks. With all the talk about tighter lending standards and cash hoarding, I've just started to receive those annoying little credit card offers in the mail. You know the ones that used to flood your mailbox each day a few years ago.

Well, that tapered off in the last year to zero mailers. Now it's just a trickle, but maybe banks are trying to figure out what to do with all that free cash and guarantees from the treasury. Also, Tuesday's big up day had some decent volume. What to make of it? Perhaps banks putting cash to work in the markets -- not a sign of risk aversion. In fact, bonds were hit rather hard three days straight as funds fled treasuries.

Economic Contraction -- It's Not So Bad

We've had recessions before, the magnitude of which has never been predicted with any accuracy. Is it all that bad? Well, this would be the first truly global recession in history. The connectedness of world economies and tightly wound financial markets call for a make/break scenario. Unless the world markets de-couple, this will be the case in the future. Like in craps, come or don't come. Now, regardless of what we are in at the moment -- contraction, slowdown, whatever -- let's look at the future. While history tells us a growth period lies beyond a recession, there is little doubt the roadmap is unclear. The 1930's blueprint is not completely valid because the economy in the Roaring 20's was not driven by global expansion. Oh sure, exports rose sharply, but mostly the crash in those days was driven by extreme credit, housing and rampant speculation, also mirroring some of today's issues. The economy is likely to be in a longer contraction period than most expect, at least that's what the market is telling us, and perhaps some short bounces along the way to a more prosperous period.

No Escaping The Bear Despite Violent Up Moves

Even after Tuesday's huge rally, markets are STILL down nearly 20% for October. Historically seen as the crash month, we did not see one single crash day of enormous magnitude, rather it was a string of days. Afterall, markets have only been up 5 of the last 19 trading days! When will this market escape the clutches of the bear? It's impossible to predict, and I never like to point to bottoms. It's a matter of time not price, meaning we need to see a considerable amount of time pass, and probably more pain, too. How to survive it? Position yourself accordingly and protect your capital. Don't be afraid to be defensive and buying put options. Playing the downside is a great strategy if done correctly. Profits are nice and they are quick. There is still blood on the streets, so take advantage of it. Being nimble and flexible are keys to success. When the market turns, you'll be ready.

Price Headley is the founder and chief analyst of BigTrends.com.