26 Issue 64 – May 2009 MARKET TECHNICIAN
Great bear markets
By Peter Beuttell
There have been few Great Bear Markets (GBMs) in the last 100 Markets. It did not see losses greater than 60%, or last the 900-1,000
years if emerging indices are excluded. The first four listed below days of the others (it was down 48% in 663 days). Similarly the UK
were examined in articles that were published in the Market lost “only” 50% in the early 1930’s. The initial phase of the Dollar
Technician in 2001, 2002 and 2003 because of both the lengthy bear market of 1985-95 is worth a mention, however. Although the
advances and the investor psychology which preceded their tops. Dollar’s 42% loss through to 31st December 1987 does not qualify it
Whilst these original four did not comprise a great statistical either, the decline lasted 1,039 days (exactly as long as the 1929-32
sample, the contention of the analysis in 2001 was that these bear Crash), and it then effectively traded almost sideways for another
trends all had a fairly similar duration, and that might be useful in nine years. And for an Elliottician, one fascinating aspect to the
helping pin-point the eventual low of that bear trend. The table is the % declines – note their proximity to the Fibonacci ratios
proposition was not so much that it would turn out to be a Great of .854, .786, .7236, .666 and .618. (Barton Biggs actually went so far
Bear Market, or that a low would occur in a given time zone, but as to publish a paper entitled Is God a Mathematician?).
that if markets were still falling at
a particular point in time,
investors should be aware of
historical precedent and be
looking for signs that a low might
be occurring.
The table below sets out the extent
and duration of some of the 20th
Century’s worst bear markets. In
the case of two of them, Gold and
Japan, the “Great” section was
actually part of a larger secular
trend. This table includes only the
initial phase. To the original four,
we have added NASDAQ and the
DAX from their 2000 highs, the
latter because it lasted longer than
the expected 1,039 days. The CAC
from that period has been
included, because its duration
varied from the DAX’s.
Note that the severe US bear
market of 1973/74 does not
qualify as one of the Great Bear
Index Closing Closing % Decline High Date Low Date Duration
I-day Peak I-day Low in Days
1. S&P 500 31.86 4.41 86.1 3.9.29 8.7.32 1,039
2. UK All-Share 228.18 61.92 72.9 1.5.72 13.12.74 957
3. Gold 880 296 66.4 18.1.80 21.6.82 885
4. Topix 2,885 1,102 61.8 18.12.89 18.8.92 973
5. NASDAQ 5,133 1,108 78.4 10.3.00 10.10.02 945
6. DAX 30 8,136 2,189 73.1 7.3.00 12.3.03 1,102
7. CAC40 6,945 2,401 65.4 4.9.00 12.3.03 920
MARKET TECHNICIAN Issue 64 – May 2009 27
Using these time periods to project forward
from 24th March 2000 (MSCI World Index
high), the following emerged: + 885 days =
2nd September 2002; + 957 days = 6th
November 2002; + 973 days = 22nd
November 2002; + 1,039 days = 27th January
2003.
Clearly Autumn 2002, then a year out, was
the period to watch. The US indices
bottomed on 10th October. It later dawned
that, since the FT World Index, France, the UK
All Share Index and the NYSE Composite
peaked in early September 2000, that there
could be a second, later, bottoming period of
the last week of March through the first
week of April. The actual second low came
on 12th March, so despite having only a
small sample of 4 previous GBM’s to work
with, the technique did not do badly.
If the time durations for the seven Great Bear
Markets are now added to the 11th October
2007 high in the S&P 500, the time window
which results is broad – 14th March to 18th
October 2010, although the 3-cluster at 920-
957 days would suggest 18th April to 25th
May.
The charts on the front page and page 28 of
this issue illustrate all seven GBMs referred to
in the table and the S&P’s current position.
Because the S&P traded below all but one of
these profiles as of the March 2009 low, this
too could easily turn out to be a GBM. In
addition, my very long-term wave count
pairs this decade with 1929-32 in pattern
terms. Since that was the greatest GBM, it is
logical that its sibling could also produce
another one.
The March low coincided with an increasingly
bullish configuration in terms of Elliott and the
standard array of indicators. Some of the same
early bull market signals which were visible 6
years ago have begun to appear again. Since
GBM analysis warns that there is still the risk
that the S&P could trade below 602 (a 61.8%
fall from the 1,576 high) at some point
between 14th March and 18th October 2010,
it will be interesting to watch the
development of this rally with that as a
backdrop. The wave patterns of the S&P 500,
NYSE Composite and NASDAQ during this
decade have all been different, and there are a
number of interesting parallels in the bond
and commodity markets, providing clues as to
whether this will indeed be another GBM, but
that will have to wait for greater clarity and
another article.
Peter Beuttell is the Director of MTS Research
Ltd
28 Issue 64 – May 2009 MARKET TECHNICIAN
