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Since the market broke one year ago, the Dow hasn’t been able to sustain one single bear market rally. The largest so far was an 11.2% gain from March 10 to May 2. With yesterday’s 10.9% gain, we might able to break that today.

Bear market rallies are very typical in long down markets. The Dow lost 89% from September 1929 to July 1932, however it was anything but a straight line. There were five separate rallies of 23% or more. By “separate rally,” I mean that Dow lost everything it gained from the rally and went on to make a new lower. Think about that—each one was a false signal that the bad times were over.

When the Nasdaq dropped 78% in the early part of this decade, there were four separate rallies of 24% or more. Three of the rallies were over 35%.

Just a friendly warning for you.

Posted by edelfenbein at October 29, 2008 11:15 AM