Bear Market
Posted on Monday, October 19th, 2009
With many investors now going through their second bear market in under 10 years it is easy to feel nervous whenever the financial press try to talk up the stock markets. But with many markets rising over 20% from their March lows, could this be the real deal?
As always in such situations, our real friends are not the financial pundits or the financial press but the raw numbers. So, ignoring the news for the moment, what do the numbers tell us? As the most traded index in the world, let\´s look at the S&P 500. There are many free financial charts on the internet but if you don\´t yet have a favourite then Yahoo Finance has a wide range of charts with the most popular indicators.
When Does a Bear Market End?
Surprisingly, for such widely-quoted terms there are no absolute definitions of what a bear and bull market really are. The closest we get to a practical definition is that a bear market is a drop of over 20% from the most recent high, and conversely, a bull market is a 20% rise from the most recent low. Note that these are relative terms and that the start of the next genuine bull market will still be below the October 2007 highs. Note also that such swings need to be consolidated for the new trend to be established. It is not enough for a market to rise 20% only to then fall back 10%.