Comparison of Current Bear to Bear Markets of 1929, 1973-74, 1987 suggests Dow 3,500 possible

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I am getting tired of listening to all of the pundits saying that the current decline resembles the 1974 bear or the 1987 bear markets.   How about looking at some data!   So, I used my TC2007 market price history database to compute how much the Dow Jones Industrial average declined in prior bear markets after the market’s peak.

The results, presented in the table below, are quite revealing and unsettling if one is looking for a near term bottom.   I would be interested to learn if you agree with my analysis.

Twenty days after the Dow had peaked, the Dow   was down 7-10% in each of these beginning bear markets. By 40 days post Dow peak, the 1987 decline had already bottomed out (-41% by day 39) and rebounded to -26%.   The ferocity of the 1929 bear was evident early on, showing a 40% decline by day 40.   In comparison, the 1973 and 2007 bears appear puny, registering only 4% to 8% declines by day 40.   The 1973 and 2007 bears tracked each other quite closely until 260 days post the Dow peak.   By day 260, the 2007 bear was actually showing a greater than the decline that started in 1929 (-40% vs. -38%) and was more than twice the decline shown in the 1973 bear market (-17%). Since day 260,   the current bear market has resembled the 1929 bear market closely, with declines being about 14 percentage points smaller.   I would conclude then, that the current bear market is tracking much closer to the one that began in 1929 than to the 1973 and 1987 bears.

Read moreComparison of Current Bear to Bear Markets of 1929, 1973-74, 1987 suggests Dow 3,500 possible

Nicolas Darvas trading techniques require markets at all-time peaks

The basic principles of my method are in fact quite simple:

Firstly, except in exceptional cases I only buy the stock of companies in new or developing industries, i.e., companies whose growth and earnings prospects look highly promising.   I never buy stocks in established industries, in companies with huge capitalizations, or in companies which are already so big that the prospect of substantial growth is highly unlikely.

Secondly, having found such lively stocks, I certainly do not buy them straightaway.   I first check the overall market trend to ascertain whether stocks in general are in an uptrend.   I then check whether the stock belongs to a strong industry group, i.e., a group that is performing well in the market relative to other groups. Only when I have satisfied myself on these two points do I look in more detail at the stock that interests me.

Why all these precautions?   Because I like to be sure that the odds are in my favor.   If the market is in a downtrend, and the industry group is performing weakly I know that the cards are stacked against me and that my chances of making big profits are poorer than if the market and the industry are strong.   You cannot be too careful in the stock market.

Read moreNicolas Darvas trading techniques require markets at all-time peaks