THANK goodness it was only a four-day week.
For even in the span of just 96 hours, the stock market this week went stark-raving mad – first pricing in the possibility of the deepest recession since the 1970s, and then two days later heralding the start of a new bull market.
But before investors get too complacent – a reality check. At the lows of last Wednesday, the Nasdaq, and Russell 2000 were officially in bear market territory with losses of more than 20 percent from their 2007 highs. The Dow and S&P 500 were just points away, but firmly in correction mode.
We haven’t had a real bear market in quite some time – so here’s a quick reminder of how the beast tends to operate.
* The good news is: Bear markets are a lot shorter in duration than bull ones – usually only a quarter to a third as long. Assuming that the latest bull market began in 2002, then this bear may only roar for a year or so.
* Bears are tricky predators, luring investors with convincing upward swings. As John Hussman, president of Hussman Investment Trust says, the last bear market from 2000-2002 included three separate advances of 20 percent each – just enough to keep investors “holding and hoping.” Some of the biggest one-day rallies ever took place during the dot-com collapse.
* Bear market rallies can turn on a dime, as was the case with Wednesday’s blast higher. As stock analyst Gary Kaltbaum, of Kaltbaum and Associates sees it, “it was classic action in a bear market.”
* Bear market losses tend to average about 25 percent depending on the severity of the decline – that would put the Dow at 10,600 at its low. But remember there have been dozens of mini-bears over the years that haven’t gone the distance.
So what’s an investor to do? Keep your powder dry for the time when the foundations of new bull market are firmly in place.
For that to happen the market will have to become convinced that most big hedge funds are sound, that the residential real estate mess hasn’t spilled over to the commercial side and that dozens of huge private equity deals can actually be funded. It’s a tall order and one that will take months to play out.
TERRY KEENANis anchor of Cashin’ In, an investing program that appears on Fox News Channel on Saturday mornings at 11:30. E-mail terry.keenan@foxnews.com.
