Trader’s Narrative

Some are comparing the current bear market to the brutal one we saw in the 1930’s, so here’s a chart comparing this rally (so far) to the bear market rallies back then:

Source: Chart of the Day

To be honest, I don’t really like the Dow Jones Index so I’ve plotted the point at which the current rally reached its maximum as measured by the Standard & Poors 500 Index in green - a 37.4% increase from the spring lows (reached on May 8th 2009). Since then, the stock market has just slithered sideways anyway.

Any way you measure it, either by the Dow or the S&P 500, the present rally has been stronger than most of the bear market rallies in the 1930’s. The outlier is the November 1929 rally which lasted 155 days and took the Dow 48% higher.

The question on everyone’s mind right now is whether this most recent recovery from the March lows is a real one, marking the end of the bear market, or whether it is just a very large and deceptive looking bear market rally?

Since some of the largest and most intense bear market rallies occurred after the crash of 1929, tere’s a chart showing the recent rally in relation to them:

William Hester of Hussman Funds also looked at this question recently with a more in depth analysis of both the size of the rally and the relationship to volume.

This chart compares the 4 week performance of the S&P 500 prior to the rally and the ensuing 5 week change. Basically, it is an attempt to gauge how sharp the rally is. Data points that clump to the bottom left show a “V” bottom; whereas data points to the top right show a more flat base formation:

Check out the article for more insights, including the role of volume.

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