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Goes Down Double-Speed

Eddy Elfenbein wrote an interesting post on the market doubling from its bottom.  But given all of the odd things going on in the markets, and one of my mottoes is “Weird begets weird,” I asked how unusual the fall was  before the rise.  Over the last 61 years, it is unprecedented.  Here’s the table:

Return table

This table lists all of the major turning points as I see them.  The summary statistics are these: bull markets last 3.5x as long as bear markets on average.  Bear markets move at 1.9x the rate of bull markets. (double speed)

But now consider cumulative bear markets as I define them:

Cumulative Loasses

and the monthly losses versus the number of days for the loss.

The longer the losses go on, the less intense the losses are on an annualized basis.  But the loss level is higher per unit time than for gains — the amount of time spent in gains is 3.5x that of the losses.  Look at the cumulative gains:

Though the gains clump around doubling, there are two results in the triple to quadruple area — makes up for a lot of losses.

As one might expect, short rallies tend to be more intense than long rallies.  Normal rallies since 1950 tend to double the index value.  Abnormal falls cuts the index in half.

But for today that leaves us overextended.  Yes, levels have rapidly doubled versus the low.  That’s unusual; it undoes a harder than normal fall.  But it would be unprecedented for the market to continue to advance at a 3% pace from here.  That would be uncharted waters.

Consider trimming some of your hottest positions.

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4 Responses to Goes Down Double-Speed

  1. [...] the S&P 500 and looks at that rallies in relationship to the falls. David says that “weird begets weird.” He finds that bull markets last longer than bear markets, but bear markets are faster than [...]

  2. [...] On the intensity of the current bull market.  (Aleph Blog) [...]

  3. [...] On the intensity of the current bull market.  (Aleph Blog) [...]

  4. [...] focus on history. Eddy Elfenbein notes the official doubling of the S&P 500. David Merkel wisely notes that the extent of the rise must be compared to the extent of the decline. (Check out his great [...]


David Merkel is an investment professional, and like every investment professional, he makes mistakes. David encourages you to do your own independent "due diligence" on any idea that he talks about, because he could be wrong. Nothing written here, at RealMoney, Wall Street All-Stars, or anywhere else David may write is an invitation to buy or sell any particular security; at most, David is handing out educated guesses as to what the markets may do. David is fond of saying, "The markets always find a new way to make a fool out of you," and so he encourages caution in investing. Risk control wins the game in the long run, not bold moves. Even the best strategies of the past fail, sometimes spectacularly, when you least expect it. David is not immune to that, so please understand that any past success of his will be probably be followed by failures.

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