Thursday, March 12, 2009

What Does a Bear Market Rally Look Like?

An outstanding article by Jeff Pierce...

Excellent chart demonstrating how powerful rallies within bear markets can be. I calculated the average decline/rally, but excluded the last decline and rally as they were so dramatic and would skew the results.
Avg % decline = 40%
Avg $ rally = 33%

Right now we’re roughly 18% off the lows on the Dow & Nasdaq. Bearish sentiment is definitely being relieved, and I can already hear people saying how with a new administration things are going to be different from here on out.

On the way to the bottom, the market must relieve bearish sentiment (make you forget your fear). It can only do this through sharp powerful rallies (where we all laugh for a day with CNBC on how close we came to the brink).

We have described these as “rocket-launched (oh they’ve saved us) bear market rallies.” Investors who cheer these sharp up moves as a sign of the bottom should take note of the chart provided by Tom Denham from Elliotwave.com below.

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