After 20% drop stocks have been unable to rally. After a 10% weak rebound rally June lows are now jeopardized. I must say this is typical bear market action. In charts below you can see phases of last two major bear markets, the 2007-2009 and 2000-2003. The first thing to notice is that bear markets tend to have at least three, but usually 4 and sometimes even 5 downside moves. Most of these plunges fall into the 15-30% category. Usually the third or fourth drop is the most destructive, when market may loose 40% or more in a matter of weeks. Fortunatelly such crashes usually mark the start of new accumulation and late stages of bear market.
The next thing to point out is that bear markets tend to last from a year to 2.5 years, depending of the number of bear market cycles and strength of the previous bull market rally. The 2000-2002 bear, following incredible 5 year, 250% bull market rally, lasted about 2.5 years and lost 50%. The 2007-2009 bear market, following 5 year, 100% bull, lasted a year and a half, loosing around 60%.
The 2009-2011 bull market was rather short. In little more than 2 years S&P got 100%. Bear markets usually loose about 50% and so should this one. A more important question is how long will it last? My best guess is that it should be one of shorter duration, presumably between a year and year and a half. Why? Well, first of all, previous bull-bear market cycle was unusually long, spanning more than 6 years. I guess this one should be shorter to "catch up" the usual 3-5 years trough-to-trough rule.
Second, all that's been happening for the last 10 years is a consequence of a secular bull market that topped in 2000. The secular bear is ready to bottom. Quick bulls should also end quickly. After only two years of rising prices, this cyclical bear should bottom pretty soon. And if the economic timing at the bottom is right, we should be witnessing the start of new secular bull market starting a couple of years from now.
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