Looking At Bear Bottoms
David Simons, 08.28.02, 8:00 AM ET
forbes.com
The five-week, 19% runup of stocks from the July lows has been hailed as absolutely, positively marking the end of the bear market decline that began in March 2000. Probably. But that doesn't mean you should rush to invest.
Long bear markets don't turn around on a dime. They recover slowly and have relapses along the way. Following the bear market low of 1970, stocks meandered for three months before beginning a sustained advance. The 1972-74 bear, which many have compared to the 2000-02 edition, took four months from its low to get in gear to the upside.
Like the boom and bust of bubbles, recoveries of major bear markets look similar to one another. The chart line of the S&P 500 in the month since this year's July low strikingly resembles the post-low performances of 1970 and 1974. Back then, V-shaped upturns of the first month were followed by sharp pullbacks that gave up three-quarters of the initial recovery.
This year, odds of a similar move are enhanced by September's status as the weakest month of the year. Since 1950 it's been down 60% of the time, with losses up to 12%, versus a maximum gain of 8%.
That doesn't mean you should hold off investing fresh cash. Markets are rarely as predictable as history can make it seem--especially about short-term moves. But the odds suggest spreading commitment over the next three months, weighted toward November.
There was a chart that I cannot post here so follow the link.
RtS |
