Bear market rallies

The rally in the stock market from early March has been impressive but it is hard to conclude from it alone that we have seen the bottom in the market.

From its intraday low at the trough of 6,516.86 on 9 March to its intraday high at the peak of 8,190.66 on 17 April, the Dow Jones Industrial Average gained 25.68 percent. Such a gain is usually enough to qualify the move as a bull market.

However, many analysts consider it just a bear market rally. Indeed, such strong rallies are not unprecedented in bear markets.

Yesterday, Barry Ritholtz posted a chart (originally from a post by Brian Shannon of AlphaTrends) that provides a historical perspective of bear market rallies. The chart showed that there were a number of big rallies during the bear market of the Great Depression too, some even bigger than the latest one.

The following table uses numbers from the chart mentioned above.

Large Bear Market Rallies
Low	High	Low-high pt diff	Low-high % diff
195.35	297.25	101.90	52.16
207.74	247.21	39.47	19.00
154.45	196.96	42.51	27.52
119.81	156.74	36.93	30.82
85.51	119.15	33.64	39.34
69.85	89.87	20.02	28.66

The next chart attempts to directly compare graphically the latest bear market with the bear market of the Great Depression. You can see that compared to the fluctuations during the latter, the fluctuations -- including the rallies -- in the current bear market so far have in fact been relatively sedate.

Note that the time scales used in the chart were designed such that both markets are presented over the same number of months. The time scales do not imply that I am suggesting that we are necessarily around half-way through the latest bear market, although that is not implausible either.