The debate rages on: Is this a new bull market or just another sucker’s rally?
Last week, we observed that, when it comes to answering this question, the recent 30% move was irrelevant: Sharp 30% rallies are a hallmark of bear markets.
The chart below plots the five bear market rallies of the Great Crash, from 1929 to 1932. The vertical axis is magnitude. The horizontal axis is time. The average of these rallies (red circle) lasted about 70 days and rose 30%. The current rally, through May 1, had lasted about 50 days and risen about 25%.
Source: Chart of the Day, May 1, 2009.
Importantly, 1929-1932 was just one of many bear markets. The average rally in others is likely different. We think the circumstances of the current collapse (extreme over-valuation at the start, way too much debt, deleraging) are more similar to 1929-1932 than other bear markets. But take this chart for what it’s worth.