Awhile back I looked at the average bear market rally during the Great Depression to see what we can expect a normail bear market rally to look like percentage wise and came up with these numbers.
Avg % decline = 40%
Avg % rally = 33%
As you can see the advances below on the major indexes have came close enough to the 33% figure that I would stick a fork in the current rally. It’s beginning to look more and more like we’ve completed the first wave down of a multi-year bear market. I realized that it’s hard to compare now to 80+ years ago, but as a trader the past is the only thing we have to go off of. Trends and patterns tend to repeat and I see nothing remotely bullish about the current indexes.
Right now I fully expect the markets to retest the 08′ lows and I’ll reevaluate then to see if I think we’re going to bust through support or bounce. It all depends how fast we get there and how much fear is in the air at that time. For example, if we drop 400+ points tomorrow then I suspect we may bounce off of support in the 7450 range. However, if we drop a hundred tomorrow, with subsequent losses later in the week, all in an orderly fashion, then we may drop a considerably larger amount due to the lack of fear in the markets.
