Merrill Lynch’s David Rosenberg was on CNBC this morning, discussing the current Bear Market. He noted that this was the sixth 300 point rally to occur since September 2007 (markets peaked the next month) — a period of time which can only be described as a Bear Market.
Even more intriguing, he observed that EVERY 300 point DJIA rally has occurred ONLY during bear markets. (Even the 1998 LTCM crisis saw two
single-day gains of more than 300 points, September 8 and October 15,
1998. At its intra-day lows, 1998 had a 20% decline).
During the 2000 to 2002 bear market, the DJIA had 15 days where it gained more than 300 points. The first was March 15, 2000 (five days after the NASDAQ peaked) and the last was October 15, 2002, near the bottom of the bear market.
Hence, the odds are against making money chasing these 300+ point rallies.
During the 2002 to 2007 bull market, the DJIA had no days where it gained more than 300 points.
Jim Bianco asks: "What does the stock market do during bear markets? It has days where it gains more than 300 points in a day. What doesn’t the stock market do in a bull market? It does not have days where it gains more than 300 points in a day."
What does yesterday’s rally say about the state of the stock market . . .?
300 Dow Point Gains ONLY Happen in Bear Markets:
Source: Merrill Lynch
~~~
Note: Watch Steve Liesman school Jack Bouroudjian — he is essentially using the argument I gave him over the weekend when we taped a discussion on Credit Risk. We should see some or most of that interview when CNBC does its big Maine trip wrap up over Labor Day Weekend.
There are a lot of reasons to be skeptical of this market – but that “analysis” from the ML strategist is one of the weakest pieces of research that I’ve seen in many years.
Barry, you’re the best, but this isn’t really a helpful indicator at all. I mean, who is to say that yesterday’s 300 point rally isn’t the last 300 pt rally in this soon-to-end bear market? You would admit that one would have been well off to chase the October 2002 rally, wouldn’t you?
The chart missed my 1st visit into TBP to see what just happened on 2/27/07 ie: DOW drop of 416 archived by Yahoo Finance. Or was the number adjusted other places following the print server que situation?
Come on, Barry. You understand percentage gain better than this. Of course the greatest changes on a point basis have occurred when the value of the DJIA is highest. Which naturally means 2000-2008. Try it again on a percentage basis and I’ll believe you.
Barry,
Not only should this be done with percentage changes, using a more market-relevant index (such as the S&P 500 or Wilshire 5000) would be better. The DJIA does NOT represent the broad stock market!
Guys and Gals let BR have some fun… What, all other stats are perfect? Sure 1000 years hence 300 points won’t mean diddly. Oh shit 3000 points probably won’t either! lol
I hope this bear market lasts forever.
This is the best trading enviroment I’ve ever seen.
As long as you are not married to one side of the trade…
While the statistical points made by other responses are correct, I think Barry was pointing out that declaring that the bottom has arrived based on a 300 point day is a shaky conclusion.
October 28th, 1997 the DJIA rallied 337 points during a bull market.
Not arguing against us being in a bear market, just making a point.
BESPOKE has just destroyed this argument by Rosenberg:
http://bespokeinvest.typepad.com/bespoke/2008/08/dow-jones-300-p.html
You guys are too tightly wound today. I think BR made his point and we all KNOW he is right – we all know a squeeze when we see one and that’s what produces the big 300-400 point up days.
I agree with VT trader – great trading environment. Knowing who is reporting earnings has been a VERY useful tool this week.
AIG has been on my mind since Tuesday’s rally started……
The short banks:long energy trade is on again tomorrow !!
It’s going down!!
I am condemned to watching CNBC all day long, which I’d rather not do, but in any case I’ve seen my share of CNBC and that was one of the best debates I’ve seen on that channel. Liesman made a couple good points actually — which one was yours, Barry? Was it the Enron comparison he made?
I wonder if the VIX takes inflation into account. And as to the 300 point rallies, compared with year 2000 dollars, they’re still anemic.
Hey folks, have you heard the latest from Microsoft Money? If you take your pension or social security when you are eligible, then you must be selfish and unpatriotic! What does that make our golden parachute CEO’s, traitors? No, CEO’s weren’t mentioned; just us greedy Boomers that worked for 30 years. Talk about ASSHATS. Next thing you know they’ll consider us greedy for milking the health insurance by getting an annual checkup.
“[Rosenberg] observed that EVERY 300 point DJIA rally has occurred ONLY during bear markets.”
This is toxic nonsense from a wirehouse no-nothing.
In percentage terms, the cases cited were mostly 3 to 4% rallies. Let’s turn back the clock to 1982, the dawn of the generational bull market. Here are some of the Dow rallies during the take-off phase:
17 Aug 1982 … +4.90%
20 Aug 1982 … +3.66%
23 Aug 1982 … +2.52%
06 Oct 1982 … +4.09%
These were NOT bear market rallies, although many thought they were at the time.
Going back even further to the 1930s, there were plenty of 5% and even 8 to 10% bear market rallies during 1930-1932. But then, there were equally huge rallies from 8 Jul 1932 forward, which were part of a five-year bull market into 1937.
Point being, high volatility is typically present both before and after important market lows. Distinguishing the volatile last phase of the bear market from the volatile early phase of the bull market is an extremely subtle exercise, which few ever master. And David Rosenberg, who doesn’t even have the freshman biz-school sense to use percentage changes rather than point changes, is not going to be the one to figure it out. I wouldn’t trust him to make correct change manning the cash register at Mickey D’s. “Would you like fries with that, David?”
many of you already beat me to this but wouldn’t it be more insightful to review the % changes rather than point changes, and also to go back further than 2000 as well??? a 300 point change in a very limited amount of years doesn’t mean much to me. I also am not sure how a large point change up or down in any given day gives you any sort of compelling reason to say the market will move one way or another in the short term.
Jim Haygood, thanks for the post, I thought yours summed it up best.
Just to hone the point a little finer, on 11 Oct 2002 — the second day of a five-year bull market — the Dow rallied 316.95 points. But GUESS WHAT — the table above ends on 10/1/2002. It doesn’t include the 300-plus point gain ten days later, which would contradict the claim that 300-point rallies happen only in bear markets.
Lying with statistics is easy to do. But this table was prepared by Merrill Lynch. The blatant unprofessionalism of Wall Street reeks, don’t it? No wonder this has-been wirehouse is losing money hand over fist. They lie to themselves, as well as others.
The authors of this study must be like the people who believe a $5 move in a stock like Transocean trading at around $132/share is the same thing as a $5 move in a stock like Halliburton trading at around $43/share.
In fact (apparently the perma-bears do not like the facts); there were two days of 300+ Dow points moves during the first week of the bull market (10/11/2002 and 10/15/2002).
Barry, you had missed the beginning of the bull market in 2002 and you are missing it now. When will you learn from your past mistakes instead of repeating them all over again and again?
~~~
BR: On October 11, 2002, the S&P500 stood at 835. Six months later, on March 07 2003, it was 829. That’s why most people mark the end of the Bear market as march 2003.
As to missing the turnaround in that era, your ad hominem attack is off base and incorrect. Funny, the piece I penned then led to accusations of being a permabull.
http://bigpicture.typepad.com/comments/2003/09/contrary_indica.html
But all asshats make the same accusations like this.
In fact (apparently the perma-bears do not like the facts); there were two days of 300+ Dow points moves during the first week of the bull market (10/11/2002 and 10/15/2002).
Barry, you had missed the beginning of the bull market in 2002 and you are missing it now. When will you learn from your past mistakes instead of repeating them all over again and again?
~~~
BR: On October 11, 2002, the S&P500 stood at 835. Six months later, on March 07 2003, it was 829. That’s why most people mark the end of the Bear market as march 2003.
As to missing the turnaround in that era, your ad hominem attack is off base and incorrect. Funny, the piece I penned then led to accusations of being a permabull.
http://bigpicture.typepad.com/comments/2003/09/contrary_indica.html
But all asshats make the same accusations like this.
In fact (apparently the perma-bears do not like the facts); there were two days of 300+ Dow points moves during the first week of the bull market (10/11/2002 and 10/15/2002).
Barry, you had missed the beginning of the bull market in 2002 and you are missing it now. When will you learn from your past mistakes instead of repeating them all over again and again?
~~~
BR: On October 11, 2002, the S&P500 stood at 835. Six months later, on March 07 2003, it was 829. That’s why most people mark the end of the Bear market as march 2003.
As to missing the turnaround in that era, your ad hominem attack is off base and incorrect. Funny, the piece I penned then led to accusations of being a permabull.
http://bigpicture.typepad.com/comments/2003/09/contrary_indica.html
But all asshats make the same accusations like this.
In fact (apparently the perma-bears do not like the facts); there were two days of 300+ Dow points moves during the first week of the bull market (10/11/2002 and 10/15/2002).
Barry, you had missed the beginning of the bull market in 2002 and you are missing it now. When will you learn from your past mistakes instead of repeating them all over again and again?
~~~
BR: On October 11, 2002, the S&P500 stood at 835. Six months later, on March 07 2003, it was 829. That’s why most people mark the end of the Bear market as march 2003.
As to missing the turnaround in that era, your ad hominem attack is off base and incorrect. Funny, the piece I penned then led to accusations of being a permabull.
http://bigpicture.typepad.com/comments/2003/09/contrary_indica.html
But all asshats make the same accusations like this.
Here is the question:
Buying the 1997 and 1998 300+ days made you money (if yuo held on long enough). But Bespoke’s chart appears to show that every subsequent 300+ day led to a lower low.
Question: What percentage of 300 point days occurred where lower prices occurred there after? What was the 300 point day to trough average percentage loss? How many days afterwards did the trough/low occur on average.
Does this mean if the Dow falls 300 points we are in a bull market? Just askin’.
That Liesman vs Bouroudjian was pure comedy… My favorite part was when everyone else started snickering when he said, foreign money was coming in.
The Dow had gains of 316 and 378 points after the market’s ultimate low and at the beginning of the cyclical bull market in October 2002. It then had two 3.6% gainers in March of 2003, which were gains of 270 and 282 points but were greater than Tuesday’s move of 2.9%.
More:
http://worldbeta.blogspot.com/2008/08/dow-300-point-days.html
quick back of the envelope calcs, FWIW.
when daily DJIA change > 2.5%, 20 days later the average return is 1.2%.
caveat: big variability (obviously). Max return: 51% from 7/20/32, max decline: -33% from 9/22/87.
185 positive 1-month changes v. 153 negative 1-month changes.
Below are the dates of such >2.5% changes ….
4/1/08
3/18/08
3/11/08
11/28/07
9/18/07
4/2/03
3/21/03
3/17/03
3/13/03
1/2/03
11/27/02
11/21/02
10/21/02
10/17/02
10/15/02
10/11/02
10/10/02
10/1/02
8/14/02
8/8/02
8/6/02
7/29/02
7/24/02
7/5/02
5/8/02
3/1/02
9/24/01
5/16/01
4/18/01
4/10/01
4/5/01
3/27/01
1/3/01
12/5/00
4/17/00
4/3/00
3/16/00
3/15/00
3/5/99
1/6/99
10/15/98
9/23/98
9/8/98
9/1/98
2/2/98
11/3/97
10/28/97
9/2/97
4/29/97
4/22/97
12/23/91
8/21/91
2/11/91
1/17/91
10/19/90
10/18/90
10/1/90
8/27/90
10/16/89
9/2/88
5/31/88
4/6/88
1/4/88
12/18/87
12/14/87
12/8/87
12/7/87
11/12/87
10/30/87
10/29/87
10/27/87
10/21/87
10/20/87
9/22/87
4/21/87
4/3/87
3/11/86
1/21/85
12/18/84
8/3/84
8/2/84
2/24/84
7/20/83
12/21/82
11/30/82
11/3/82
10/18/82
10/11/82
10/6/82
8/23/82
8/20/82
8/17/82
1/28/82
4/22/80
11/1/78
8/2/78
4/14/78
8/28/75
4/9/75
1/27/75
1/2/75
11/5/74
10/29/74
10/10/74
10/9/74
10/7/74
9/19/74
9/5/74
8/30/74
8/7/74
7/12/74
1/3/74
12/26/73
12/7/73
12/6/73
11/28/73
5/24/73
8/16/71
6/16/70
5/28/70
5/27/70
5/15/70
10/12/66
11/26/63
10/24/62
6/28/62
6/15/62
5/29/62
11/15/57
10/23/57
12/18/50
12/9/46
10/31/46
10/15/46
9/11/46
9/5/46
1/28/46
12/30/41
11/7/40
9/23/40
6/12/40
6/11/40
9/19/39
9/11/39
9/5/39
7/17/39
10/5/38
9/30/38
9/29/38
9/28/38
9/20/38
6/29/38
6/23/38
6/20/38
6/6/38
6/1/38
5/6/38
4/22/38
4/11/38
4/8/38
4/5/38
4/1/38
3/15/38
2/21/38
2/8/38
1/10/38
1/6/38
1/4/38
12/20/37
11/29/37
11/26/37
11/10/37
10/20/37
9/27/37
9/14/37
7/6/37
10/21/35
5/8/35
12/28/34
9/25/34
8/9/34
8/1/34
7/27/34
6/8/34
5/17/34
3/2/34
1/15/34
12/28/33
12/22/33
12/5/33
11/20/33
11/16/33
11/8/33
11/3/33
10/24/33
10/20/33
10/4/33
9/18/33
9/11/33
8/25/33
8/17/33
8/9/33
8/8/33
7/24/33
7/17/33
7/3/33
6/26/33
6/23/33
6/19/33
6/12/33
6/2/33
5/29/33
5/26/33
5/23/33
5/10/33
5/1/33
4/24/33
4/20/33
4/19/33
4/13/33
4/10/33
4/5/33
3/15/33
2/24/33
1/10/33
1/4/33
12/14/32
12/9/32
12/6/32
12/1/32
11/11/32
11/10/32
11/7/32
11/4/32
10/19/32
10/14/32
10/11/32
9/28/32
9/21/32
9/20/32
9/15/32
9/7/32
9/2/32
8/22/32
8/16/32
8/15/32
8/10/32
8/8/32
8/5/32
8/3/32
7/27/32
7/25/32
7/22/32
7/20/32
7/15/32
7/13/32
7/11/32
7/1/32
6/15/32
6/10/32
6/2/32
5/6/32
4/27/32
4/21/32
4/14/32
3/2/32
2/24/32
2/18/32
2/16/32
2/15/32
2/11/32
2/1/32
1/20/32
1/13/32
1/8/32
1/6/32
12/29/31
12/18/31
12/7/31
11/30/31
11/9/31
11/6/31
11/4/31
10/30/31
10/23/31
10/20/31
10/16/31
10/8/31
10/6/31
9/23/31
8/14/31
8/11/31
7/16/31
6/24/31
6/22/31
6/10/31
6/4/31
6/3/31
5/8/31
5/4/31
4/30/31
3/16/31
3/9/31
2/24/31
2/9/31
1/20/31
1/2/31
12/17/30
12/1/30
10/24/30
10/20/30
10/10/30
10/1/30
8/15/30
7/14/30
6/30/30
6/19/30
6/10/30
5/6/30
12/31/29
12/26/29
12/13/29
12/6/29
12/3/29
11/21/29
11/20/29
11/19/29
11/15/29
11/14/29
11/7/29
10/31/29
10/30/29
10/7/29
8/12/29
2/11/29
11/22/28
11/16/28
11/12/28
Sure did enjoy TODAY’s 300 point rally though.
300 Point Rallies: Final Point
One final note on our prior discussions of 300 point rallies: The first firm to make note of this (as far as I can tell) was a study by Lowry’s Reports. They discovered that during the 2000-2003 bear market, there were sixteen three hundred-point up da…