Tuesday, August 18, 2009

Low volume up day, not a bullish sign

I'm pressed for time, but IBD had a some great information. I've noted it below:

Source: Investor's Business Daily, August 19th, 2009. Page A-1.

After the Nasdaq surged 59% in just 24 weeks, a correction is not shocking.

Indeed, a consolidation may be healthy for the market. Remember, the best stocks often build new bases during weak markets.

For some perspective, let's look at the bull markets that followed bear raids in modern history that cost the averages at least 50% — situations that were similar to today's.

There were four such rallies: The Dow Jones Industrials from July 8, 1932, to July 21, 1933; the Dow again from April 1 to Nov. 11, 1933; The S&P 500 from Oct. 4, 1974, to July 18, 1975; and the Nasdaq from Oct. 11, 2002, to Jan. 30, 2004.

Each of these bull periods sat through just one or two moderate corrections until the next major downturn.

The worst was the 1932-33 Dow's 39% retreat, but the others ran just in the midteens. These corrections lasted four to 15 weeks, except for a 25-week fall for the 1932-33 Dow.

When stocks do return to an uptrend, how much more can we expect? Let's gauge where these other bulls stood after 24 weeks, which is where the current correction began.

The 1932-33 Dow had already climbed 49%. It would ultimately rise 173%. So, after 24 weeks, that uptrend was at 28% of its course. The 1938 Dow had traversed 60% of its eventual run in the first 24 weeks of its run.

The 1973-74 S&P 500 found itself 64% along the way, and the 2002-04 Nasdaq just 26%.

So, if history is any gauge, the bull run has more room to go. After 24 weeks, the prior four post-meltdown bull markets had notched, on average, just 44.5% of their eventual gains.

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