Cyprus - A Stock Market Dies

Includes: DIA, SPY
by: Acting Man

What Happens Usually After Big Bear Markets Conclude?

If we look back at the history of big bear markets in stocks, they normally put in a definitive low either at the height of a panic (a spike low), or after an extended period of disinterest, during which the market usually declines considerably further in percentage terms, but trading volume concurrently dries up.

Two examples for such typical "disinterest lows" following a major bear market are the 1932 low in the DJIA/SPX and the late 2000 lows in the XAU and HUI. In both instances the market suffered considerable additional losses in the final few months of its decline, with trading volume withering away (in the case of US stocks, trading volume was down 90% compared to its height in 1929 – stock prices were down by 90% as well at the low). However, in both instances, after a definitive low had been established, the market very soon embarked on a relentless advance.

The DJIA's bear market in the 1930's and the beginning of the subsequent rally. Although this is not immediately obvious on a linear chart, the final decline from February to June 1932 was the biggest wave down in percentage terms.

The HUI from 1996 to 2002 - again the final wave down was actually the steepest in terms of the percentage loss, but once the low was established, a strong rally ensued.

So this is the usual manner in which major long-term bear markets conclude - once the low is established, the market soon embarks on a sizable rally. So what happens after the biggest crash ever?

The Aftermath of the Biggest Crash Ever

The stock market of Cyprus is - so far anyway - different. We are keeping an eye on the chart of the Cyprus General index, because its decline was, as far as we are aware, the biggest decline of a stock market index in history. It fell from a high of 5,500 points to a low of just 85 points, a loss of over 98%. This means that the market lost another 85% after it had already fallen by 90% - an unprecedented massacre. It is perhaps appropriate that since then, the market seems to have almost literally expired. Its chart currently looks like the EKG of a recently deceased patient.

Cyprus after the crash: flat line.

We're not sure what this means, except to say that contrary to past major market crashes, this one has so far clearly not represented a buying opportunity. A very curious development indeed. In order to illustrate what the biggest market crash ever looks like on a log chart, here is a long-term chart of the bubble in Cypriot stocks and the subsequent denouement:

Cypriot stocks, a long term log chart – a bubble, followed by an extra-sized bust, followed by … nothing.

As we know courtesy of Ridley Scott since 1979, it makes no sense to scream in space. Apparently, the same is now true of trading stocks in Cyprus.

Charts by BigCharts, Sharelynx.