Tuesday, March 31, 2009

Bear Market Bottoms Revisited

Click on Chart to Enlarge

Due to the strong rally the last few weeks, I wanted to take a look again at what type of price action has historically confirmed the end of bear markets. I originally made this post in mid-January so that blog readers could get an objective and easy to calculate way to "know" when the bear market is over and when to get back in long term investments. For those interested or questioning whether this bear market is over, you should read that post because the same logic applies to both the ends of bull and bear markets.

To sum up that prior post.....a near fool-proof method of knowing that the bear market is over is to see a handful or more of bear market rallies where finally a rally off a new bear market low is about 120% the size of any previous rally.

The chart above shows the current bear market with the approximate % gain of every rally lasting at least a month before making new bear market lows. The current rally stands in the 26+% range. The Nov-Jan rally was about 27%. So we need to see about a 33% gain off a bear market low to be 120% of 27%. That would correspond with 888 roughly in the S&P 500 if the market continues higher during this current rally.

So, it is not safe by historical standards to assume the bear market is over yet. From a pattern perspective I would say with near certainty that it is NOT over yet and we will see new lows, probably in dramatic fashion, before it is over.

As an aside and follow up to yesterday's post......

Here is a link to the 2008 Blog Trade Review post I made in January for anyone interested.


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