Goes Down Double-Speed

Eddy Elfenbein wrote an interesting post on the market doubling from its bottom.  But given all of the odd things going on in the markets, and one of my mottoes is “Weird begets weird,” I asked how unusual the fall was  before the rise.  Over the last 61 years, it is unprecedented.  Here’s the table:

This table lists all of the major turning points as I see them.  The summary statistics are these: bull markets last 3.5x as long as bear markets on average.  Bear markets move at 1.9x the rate of bull markets. (double speed)

But now consider cumulative bear markets as I define them:

and the monthly losses versus the number of days for the loss.

The longer the losses go on, the less intense the losses are on an annualized basis.  But the loss level is higher per unit time than for gains — the amount of time spent in gains is 3.5x that of the losses.  Look at the cumulative gains:

Though the gains clump around doubling, there are two results in the triple to quadruple area — makes up for a lot of losses.

As one might expect, short rallies tend to be more intense than long rallies.  Normal rallies since 1950 tend to double the index value.  Abnormal falls cuts the index in half.

But for today that leaves us overextended.  Yes, levels have rapidly doubled versus the low.  That’s unusual; it undoes a harder than normal fall.  But it would be unprecedented for the market to continue to advance at a 3% pace from here.  That would be uncharted waters.

Consider trimming some of your hottest positions.

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About David Merkel 145 Articles

Affiliation: Finacorp Securities

David J. Merkel, CFA, FSA — From 2003-2007, I was a leading commentator at the excellent investment website RealMoney.com (http://www.RealMoney.com). Back in 2003, after several years of correspondence, James Cramer invited me to write for the site, and now I write for RealMoney on equity and bond portfolio management, macroeconomics, derivatives, quantitative strategies, insurance issues, corporate governance, etc. My specialty is looking at the interlinkages in the markets in order to understand individual markets better. I still contribute to RealMoney, but I have scaled it back because my work duties have gotten larger, and I began this blog to develop a distinct voice with a wider distribution. After one year of operation, I believe I have achieved that.

In 2008, I became the Chief Economist and Director of Research of Finacorp Securities. Until 2007, I was a senior investment analyst at Hovde Capital, responsible for analysis and valuation of investment opportunities for the FIP funds, particularly of companies in the insurance industry. I also managed the internal profit sharing and charitable endowment monies of the firm.

Prior to joining Hovde in 2003, I managed corporate bonds for Dwight Asset Management. In 1998, I joined the Mount Washington Investment Group as the Mortgage Bond and Asset Liability manager after working with Provident Mutual, AIG and Pacific Standard Life.

I hold bachelor’s and master’s degrees from Johns Hopkins University. In my spare time, I take care of our eight children with my wonderful wife Ruth.

Visit: The Aleph Blog

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