Bear Market Analysis

A Bear Market is usually defined by several characteristics. One is a decline in prices in the stock market indices that last for an extended period of time and reach a decline of 20% or more.

Another common characteristic, and possibly the most dangerous, is a period of Deflation that follows a period of over priced assets.

They usually last from several months and in extreme cases, can last several years. These periods are usually accompanied by a recession, high unemployment, increasing pessimism, wars and increased violence among other things.

Once prices decline for a period of 24 months, it is usually classified as a "Depression".

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In addition to this page, I have the following pages to give you more information on the 2008 Stock Market Crash and Bear Markets in general:

• Bear Market and Depression
• 2008 Stock Market Crash Comparison
• 1930 Stock Charts

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The last Stock Market Depression in the United States (prior to 2008) occurred in the 1930's. During the initial phase of the Depression, the stock market declined between 45-50%, followed by several months of a rally in which stock market rose about 25%. After this short rising period, the decline continued down totaling just over a 90% decline over the next few years.

If you take a look at the prices of the Japanese stock market from around 1988 until today, 20 years later, you will see the same thing has occurred except over a longer period of time. Remember that during these declining price periods, there were several rising price periods, just not enough to reverse the long term trend.

I came across the following chart several months ago and have been following and updating it ever since, at dshort.com (Chart Used with permission) which illustrates great comparisons of past bear markets with their respective declines. The author has shown comparisons to four separate time periods, with one resulting in a depression. You can open a larger image by clicking the chart. The chart was last updated here on 10/22/2010.

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