The Nasdaq is now down 18.37% from highs reached on 10/31/07. A bear market occurs when the price declines by 20% or more after previously rallying by 20% or more. While it's not yet a foregone conclusion that the Nasdaq will turn into a bear, it's getting very close, and investors should be prepared for what the typical bear looks like. Since the Nasdaq index was created back in 1971, it has suffered 13 bear markets. The average bear has been 216 days long for an average decline of 36.51%. Only 4 out of the 13 bears saw declines of less than 30%, and 4 bears saw losses of more than 40%.
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It looks like, historically speaking, once the NASDAQ declined 20%, it continued for at least another 8%, except on two of the 13 occasions. Also, the median decline was 36%.
Before drawing any more conclusions, it might be nice to see a list of the NASDAQ declines that didn't quite reach 20%--similar to the current decline (say, how often has the NASDAQ declined less than 20% but more than 15%?). Then it would be easier to judge how often a large decline (15%+) turns into a bear market decline (20%).
Posted by: Scott Teresi | January 20, 2008 at 12:38 PM
Great point Scott, I almost missed the conditioning of these stats on the NASDAQ taking at least a 20% decline
Posted by: Thomas Johnson | January 20, 2008 at 01:38 PM