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Strategies & Market Trends : Aardvark Adventures -- Ignore unavailable to you. Want to Upgrade?

To: jmiller099 who wrote (6408)	4/19/2009 1:06:16 PM
From: ~digs	Respond to of 7944

[Mar12th] How High can a Bear Market Rally Go? prudentmoneyoutlook.wordpress.com This answer might get a little technical. However, if you think through it, I believe it will make sense. First, a review of a few definitions. A bear market represents a period of time where the stock market falls in value. Once a stock market has fallen greater than 20% it is believed to be in a bear market. During a typical bear market, there are 2 bad periods (major declines of the stock market) and 3 good periods (bear market rallies). Our current bear market that began in 2007 is no typical bear market. It is a bear market (my opinion) that resembles the 1929 to 1932 bear market or a crisis bear market. My anaylsis shows that in crisis bear markets there are 7 bad periods (major declines of the stock market) and 6 good periods (bear market rallies). Let’s take a look at 1929-1932 bear market and see what those good periods looked like. The 6 bear market rallies averaged a gain of 22.8% before returning to the market decline. The lowest return was 12% and the highest return was 38%. The average length of time was around 2 months. Today’s bear has lower than average returns of the bear market rallies and the average time period has been much shorter as well. Thus far this bear market is positive by 12.6%. Instead of focusing on how many days it could last, I would rather look at how high it could go. So, this is where we talk about price levels. A price level represents the value of the stock market (I use the S&P 500 Index) Today the S&P 500 finished the market day at a price level of 750. I suggest that we are at a critical point here with this 12% return for the stock market. My very-short-term indicators are signaling some trouble for the S&P 500. If the S&P 500, over the next few days (Friday and Monday), can continue to go higher, then that is a good sign of stength. If not, this might be all she wrote. I would be shocked if a significant bear market rally started on Tuesday of this week. However, I have been shocked and wrong before. I would have thought the S&P 500 would have gone much lower before starting a bear market rally. So, if this is intended to be a typical bear market rally, I would think it would go as high as 800 to 825. If that were to occur, that would be a bear market rally with a gain of 20 to 23% (in-line with the averages). If this is a major bear market rally like a few of them that occurred in the 1929 bear market, we would have a price target of 940 to 950 on the S&P 500 which would be a gain of 42%. Even with that gain, the S&P 500 would still be negative 39% from the all-time highs set in October 2007. Today’s closing above 741 was a good sign. Once again, you want to see the stock market continue with momentum over the following couple of days.