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A Historical Perspective of Recent Bear Markets

Via Jim Stack's Investech, comes this interesting view of how prior Bear Markets compare relative to the most recent 9% correction.

Jim does something a bit different -- he depicts these prior Bear Makets starting from the most recent July 19 highs:

"Shown on this page are some the most significant bear markets of the past 40 years.  In historical terms, they range from the brief and mild (1990) to the long and severe (1973-74 and 2000-02)

As you step through each, try to imagine what it would be like riding the market down – where the DJIA would be by  year-end, and how your strategy might be affected if/when the DJIA broke 10,000.  This will help you understand your own tolerance for risk in the current market climate, and what each would look like if it started at DJIA 14,000 on July 19, 2007"

Click for larger charts

Now consider that since that July 19 peak of just over 14,000, the Dow has yet to breach even 13,000 to close with a downside move of 10% (thanks to all who pointed out that my original comment was incorrect).

What is so fascinating to me, given the relative mildness of this pullback, is how much noise we have heard from the crowd -- Sturm und Drang -- as if this was Def Con 1. I like the way Dan Gross describes it, calling out the "motley collection of gazillionaires, conservatives, and industrialists begging the Fed to cut interest rates."

Thanks, Jim -- great stuff.

Thursday, August 30, 2007 | 08:39 AM | Permalink | Comments (40) | TrackBack (0)
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Comments

The level of noise from the crowd is proportional to the amount of leverage and margin.

Kind of like listening to the shrieks from the riders of a rollercoaster - can you imagine the level of noise when we plunge over that last big upleg?

Posted by: Winston Munn | Aug 30, 2007 8:56:16 AM