Tag: bear market rallies

Guest Post by John Hussman

Valuations are informative about long-term returns and full-cycle risks. Market internals are informative about investor psychology over shorter segments of the cycle. Presently, neither valuations nor internals are favorable, and that is what opens up a trap door under the market. There will certainly be periods where short-term oversold conditions will enable scorching market rebounds (what we typically describe as “fast, furious, and prone to failure”), but the strongest market return/risk profiles we identify will be associated with points where a material retreat in valuations is joined by an early improvement in our measures of market action. –  John P. Hussman, Ph.D., The Heart of the Matter, Nov 2018

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Continue reading “The Fast and the Furious”

This sucker is looking a little long in the tooth.

Today’s chart illustrates rallies that followed massive bear markets. For today’s chart, a ‘massive’ bear market is defined as a decline of greater than 50%. Since the Dow’s inception in 1896, there have been only three bear markets whereby the Dow declined more than 50% (early 1930s, late 1930s until early 1940s, and during the recent financial crisis). Today’s chart also adds the rally that followed the dot-com bust during which the Nasdaq declined 78%. The current Dow rally has followed the post dot-com bust rally of the Nasdaq that began back in 2002 fairly closely and held to a general post-massive bear market rally pattern — rally during the first 300 trading days, trade in a relatively flat choppy manner up until around 600 trading days and then re-embark on the second leg of the rally. It is worth noting that for the post-massive bear market rallies that began in 1942 and 2002, a major correction began after 1,200 to 1,300 trading days had passed. The post-financial crisis rally is currently over 1,300 trading days old.

Chart of the Day