Current Rally Is 'Short in Duration, Below Average in Magnitude'

The Dow Jones Industrial Average has recorded a gain of 56.9% since the current rally commenced on March 10 - 176 trading days ago. In order to put the rally in historical perspective, Chart of the Day has provided a handy graph on which all major market rallies since 1900 are plotted.

Each dot on the graph below represents a major stock market rally as measured by the Dow and shows the Average began a major rally 27 times over the past 109 years, i.e. an average of one rally every four years.

Most major rallies (73%) resulted in a gain of between 30% and 150% (29.8% to 150.5% to be exact) and lasted between 200 and 800 trading days (9.5 months to 3.2 years) — highlighted below with a blue-shaded box.

“As it stands right now, the current Dow rally (hollow blue dot labeled “you are here”) would be classified as both short in duration and below average in magnitude,” concluded Chart of the Day. Some food for thought as we ponder whether we are dealing with a primary bull market or a bear market rally …

(Click to enlarge)

Source: Chart of the Day, November 13, 2009.

Comments

[bob adamson:]

Let’s take it as given that we are engaged in a bear market rally as you suggest Mr. du Plessis or a relief rally. Would you not agree that it is occurring in highly unique circumstances?

First, there has never been in peace time such concerted support by governments and central bank stimulus measures across the major economies for economic recovery as at present and there is no realistic expectation that these measures will be lessened significantly anytime soon. Second, the back-story for most investors is as much their losses of 2008 as their gains since March of 2009. In other words, the usual tightening efforts of the monetary and fiscal agencies after a spectacular eight month surge in the stock market are not occurring this time and are not anticipated any time soon and the usual euphoria of investors and consequent overbought market conditions following such a surge are decidedly absent now. Third, early tentative signs of economic recovery are becoming apparent abroad if not as surely in the US, at least in the eyes of a significant number of observers.

This is not to suggest that a bull market can be powered by continuing stimulus measures, the fact that significant potential investor money remains on the sidelines because of persistent pessimism and signs that an anemic recovery may have begun. Arguably it does suggest a more than even chance that the relief or bear market rally will continue for a couple more months before a modest correction takes place.

Nov 15 03:19 AM

[David Van K...:]

This chart is silly. It's comparing the partway "score" of one rally to the completed scores of other rallies. What can you possibly learn from that?

A much better chart would be to compare the current partial rally to all the other rallies after the same number of trading days. Or alternatively, compare all the other rallies after they had reached this rally's gain (57%) and see how many trading days it took them to get there. In other words, a chart that represents a level playing field and apples-to-apples.

Whether this is a "primary bull market" or a "bear market rally" is irrelevant. The useful question is, "is it investable?" That is, given your own investment approach (value, growth, TA, timing, hedging, short/long, whatever), have you been able to make money from this rally? At 8 months duration and 57% magnitude, I certainly hope so, but judging from many comments all around, it looks like many people missed it. I don't understand how that's possible, but it seems to be true.

By the way, if it is a bear market rally, that only means it is going to reverse at some point. That's fine, ALL rallies--even 5-year bull markets--stop at some point. That just means that you've got to be ready to hop off the train. You've ALWAYS got to be ready to hop off the train. It's no different this time.

Nov 15 08:04 PM