The Biggest Rallies Come In Bear Markets
A great place to look up good information is the annual Stock Traders Almanac (shout out to my pal Jeff Hirsch). In the back of every issue is a list of the biggest point swings, both up and down. It's a really cool set of 10-12 pages and I encourage you to go check it out. They do a nice job of splitting up the market to compare data pre-1950 and post-1950. The Almanac always points out that before 1950, farming was a major portion of the U.S. economy, so the world was a much different place.
If you look at the top 10 biggest rallies, percentage-wise, in the Dow Jones Industrial Average before 1950, they all took place in the following years: 1929, 1931, 1932 & 1933. These years represent some of the worst bear markets of all time.
Moving into more recent periods, we want to find the top 10 best days since 1950. They all took place in 1987, 2002, 2008 & 2009. Again, these are some of the worst times to buy stocks in our lifetime.
I've been talking about this specific characteristic of downtrends all month:
Remember the biggest rallies of all time have come within the context of a bear market. It’s actually very normal. Let’s keep that in mind if we get a few of those this month.
— J.C. Parets (@allstarcharts) October 12, 2018
You're going to see headlines like these. Expect them. But we want to remember that they come in these types of markets:
It's normal. I don't think we have to overthink it. We've been down this road before. We have a list of characteristics of the types of things that stocks do when they're in bull markets and how they behave when they're in bear markets. It's been very clear all month that we've seen an overwhelming amount of evidence of bear market behavior and little or no evidence of a bull market for stocks.
That's how I continue to see things.
Let me know what you think
JC