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Today’s viciously down market made me think of how this bear market would stack up compared to the previous one we just went through a few years ago.
As you can see from the chart below, the last bear market had six major counter rallies. Two of them were 10% and the rest more than 20% each. After all was said and done, the market fell 49% from its peak in 2000:
In contrast, we’ve seen a much more brutal decline in this current bear market. As of today’s close, the market is down 50% from its October 2007 peak. But while the drawdown is similar in magnitude, it has occurred in a much shorter time frame. While it took the S&P 500 index 1833 days to once again reach a new high from the depths of the 2002 bear market bottom, it has taken it only 489 days to lose it all:
And we’ve only seen four major counter rallies, with the last one being the largest. So what does this mean?
For one, before a bear market is spent, it needs to suck in as many bulls as possible. It does this by fooling them into believing that the worst is over; by dangling the alluring bait of hope before their screens. What better way to convince you that it is safe to venture into the market than by showing you a tantalizing +20% rally?
But this bear market seems to be different. It is relentless. Merciless. And while sentiment would suggest that people are actually complacent, we haven’t seen much push back from the bulls.
A 50% decline is certainly a psychological ‘line in the sand’. Beyond that, from a technical point of view, it is an important level at which reversals take place. And yes, it is also a Fibonacci level. But of course, this doesn’t mean that the market has to do anything.
Compared to other markets, the US has held up quite well. For example, Ireland’s ISEQ index has already fallen 78% from its peak in early 2007.
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