Any opinion on this?
I had our researchers take a look at the last eight bear-market bottoms, from the nadir of the 1973-74 recession to the relatively brief drop from July to August 1998. This included the precipitous drop of Black Monday, Oct. 19, 1987, which is significant, because the drama of that day seems to have colored everyone's expectations. Black Monday was an explosive, panicked sell-off, with volume that day more than 10 times the average. Though not as dramatic, the pattern held in 1998, when the market bottomed on Aug. 31. Volume was twice the daily average. But guess what? Those were the only explosive sell-offs that characterized market bottoms.
Take 1974. The long bear market that ended on Oct. 3, 1974, is the one most often compared to our recent experience. Volume that day barely exceeded the daily average of 17.2 million shares. The drop was modest. Heavy volume came only at the end of that month, and it acompanied a sharp rise in the market, not a further decline. Indeed, that was the pattern in the bear markets of 1978, 1982 and 1984. The "explosions" came on the upside, after the market had hit bottom. In 1980 there was explosive volume a few days before the market bottomed, and in 1990 it came months before the market bottomed. So the technicians' rule-of-thumb held true in only two of the eight bear markets, and was in the ballpark only half the time. I wouldn't call that much of a predictive tool. What I could see from looking at the charts is that most market bottoms don't look like much of anything at all. They're just another day in the market, until hindsight renders them significant. |
