Just Another Bear Rally?

Could the market's recent advance simply be one of several bear rallies we can expect to experience in this secular bear market that began in 2000? As the below chart notes, the current rally in the Dow is shorten in duration and magnitude than the average 1929-1932 bear market rally.

Source: Chart of the Day

It is not uncommon to have these bull runs in secular bear markets. Crestmont Research has a nice table of past secular bear and bull markets that detail the intermediate bull and bear periods within each cycle. Even in bear markets, such as in the bear market of 1966-1981, there were nine positive years that generated an average return of 13%. The entire 16 year period saw the market return -10% from the beginning to the end of the bear period.

Secular Bear Market Table

I noted in an earlier post today that investor cash now exceeds the value of assets invested in equities. So maybe this sideline cash is warranted and won't find its way into equities?

Comments

[latamike:]

Still with the bear market rally talk? Give it up already.

May 03 09:22 AM

[Brad Castro:]

Good post.

I'd already seen the Chart of the Day graph myself and was struck at the time by how many strong rallies there were during the Depression years.

I'd not seen the Crestmont table, however - thanks for including (although I had to open it at crestmontresearch.com/... to get it large enough to view). I think it's also worth noting to look at the P/Es included for each year in the table - that illustrates pretty clearly the correlation between P/Es and bull and bear markets. Bull markets begin with very low P/Es and end when the P/Es expand to unsustainable levels.

May 03 09:35 AM

[dcb:]

two months, 30% that's 180% per year. = not sustainable, too much, too fast= false

May 03 10:11 AM

[InvestBaboo:]

HOPE! You stand on the sidelines and hope! I did not know that we had a bear market since 2000 and (follish me!) I thought the bear market begin with the crash of 2008! Pretty soon you will probably go back to 1930's and state that the bear market actually begin then and all the blips to the north inbetween were fake bull market rallies. And then of course back to the day of the Romans and how since their civilization crumbled in the long run we are all toast and there has never really been a bull market since the start of civilization and we can only hope for doom, death and dyspepsia in the future!

May 03 11:32 AM

[Market Sniper:]

Historical bear market rally. If the quants are to be believed, also a Ponzi Rally as 40% or so have been the work of the funds, most notably GS and MS. Add to that massive short covering and we have an unsustainable move. Think it is going to become one of the all time great bull traps. Abbey Cohen at Gollum Sucks has just put up a target of 1050 for the S & P for this move. A move to that level should get some a lot of that sidelined money committed. Then WHAT? Economy will not be the engine to sustain a move higher. Think Gerald Celente most likely has it right.

May 03 11:54 AM

[allforone:]

So where did the president take over the banking, automobile and mortgage industries in 1929?
Get over it, your buying puts has come to an end. Grow some balls and put that retirement destroying blood money back into growing the American economy instead of trashing it.

May 03 12:08 PM

[kemolledog:]

Printing money won't create sustainable business. False money always goes first to the "operators" and scam artists first, who see the immediate opportunities. Creators of real business look beyond such ethical frauds, so they tend to avoid the environment.

Regarding the recent uptick, most of us have yet to come to grips with the reality of loss of equity, in our homes, pensions and of course stocks. There is still a wish and hope that things will pick back up and we will recover what we've lost. Since so much of the past ten years was based on "false" money, the lenders of new debt are not going to lend until they are more than 100 percent certain of the our ability to repay. Trust and credibilty will be a long time in coming back. You can imagine, that as this reality starts to be realized, there will be many retrenchments in bear rallies until some point in the next 5 or ten years there is no longer any hope. That is the time when the market will rebuild for the next long cycle.

May 03 12:50 PM

[soitanly:]

Professional traders say corrections are necessary for a healthy bull. The current bull run has not had a real correction yet, and looks like it may soon begin to roll over. It also looks like (in pattern shape and after-effect) the succession of failed rallies that have accompanied the DJI or S&P bear market (11/19/07, 2/25/08, 3/10/08, 7/15/08, 10/9/08, 11/20/08, 3/6/09) all the way down. The rally beginning 11/20/08 peaked in early January 09, and eerily resembles the current bull run in its topping pattern.

Depression-era bull runs were sharper and fell off much faster, at least 9 waves down. Also, Depression-era average volume decreased until the real bottom in mid-1932, while this bear has had increasing average volume throughout, showing the influence of increased participation by large funds. The fat lady hasn't even come on stage yet.

May 03 04:19 PM

[SeekingTruth:]

Basically agree with kemolledog.

The term I have coined for our current environment is "Offset Depression".
A pure unequivocal Depression is being somewhat "Offset" by the printing of money.
This is useful as shark repellent and will work untill we run out of repellent or until the sharks grow immune to it.
So it is buying us a little time , but is accomplishing absolutely nothing useful or constructive in a fundamental sense of correcting our flaws and problems.
As a result, my estimate is that it will be 10 plus years to evolve our way out of these problems , assuming no large catastrophies in the meantime.
The stock market will rachet up and down in this time period, but if you are looking for strong fundamentals to justify rallies , I suspect you will be disappointed for the most part, as oversold technical rallies are likely to be the most profitable plays, "if" you have the guts and the skills to play them. The current rally is a case in point.
Just rememember that when you participate, you swim with the sharks, i.e. GS = Golden Sharks.

May 03 04:37 PM

[Alphameister:]

I'll be happy to settle for a "bear-market rally" on the order of the one seen from 2003 to 2007. Final sentence of this article is truly a masterpiece of analysis.

May 03 05:10 PM

[Spartacuss:]

A message to all: do you, any of you, really think that this situation, this problem, this economic meltdown is just another recession?

I for one don't even think in terms of a bottom. What I thnk about is a major historical transform. We are in a new paradigm, a new state of things. The old world is gone. We now have to transform our thinking about all things not just market opportunities.

We are in dangerous waters, politically, economic, resource and moral. I want to invest in what I want to defend, to fundamentally believe in and to support. Life, liberty and the pursuit of happiness.

We have to beleive in ourselves, in our neighbors, in our governance and in our values and in justice. Money is not the end, and money wont buy your way out of a lack of values.

So, I submit to you all, look around, we are in a collective dillema of failure of governance and it has now reached epic proportions. We need to gather to put a stop to the encroachment of statism and socialism.

May 03 06:11 PM

[capt Brian:]

Has GC ever been wrong?


On May 03 11:54 AM Market Sniper wrote:

> Historical bear market rally. If the quants are to be believed, also
> a Ponzi Rally as 40% or so have been the work of the funds, most
> notably GS and MS. Add to that massive short covering and we have
> an unsustainable move. Think it is going to become one of the all
> time great bull traps. Abbey Cohen at Gollum Sucks has just put up
> a target of 1050 for the S & P for this move. A move to that
> level should get some a lot of that sidelined money committed. Then
> WHAT? Economy will not be the engine to sustain a move higher. Think
> Gerald Celente most likely has it right.

May 03 08:52 PM