It's easy to get distracted during a holiday week, so it may come as a surprise to many investors that this week began with two days of market declines. Then the day before Thanksgiving delivers a 236 point loss for the Dow Industrials.
But we see evidence that the bear never truly departed in the time after the October 2007 high -- not even in the period since the March 2009 low.
Consider, for example, the fact that market volume expanded during the 1982-2000 bull market. By contrast, volume declined during the recent two-year rally.
This suggests that the 2009-2011 stock market gain was not a new bull trend, but instead a bear-market rally. Please see the chart below:
Robert Prechter recently said this about the rally's shrinking volume:
"The curse of the 2009-2011 rally was its low and declining volume. When it persisted for a year and a half, commentators dismissed it as being unimportant. On the contrary, the stock market’s rise on contracting volume for an unprecedented 26 months meant that it was the biggest bear market rally ever, implying a commensurate resolution."
Elliott Wave Theorist, September 2011
How big is the "commensurate resolution" likely to be?
One particular period offers a clue. Here's what Prechter said in his latest Theorist (emphasis added):
"Many people point out the differences between the financial/economic situation today and that of the late 1920s-early 1930s. Conquer the Crash argued that the two situations are very similar except that current conditions reflect an Elliott wave trend change that is a full degree larger."
The rally that followed the 1929 low lasted five months (Nov. 1929-April 1930). By contrast, the rally that came after the 2009 low lasted 26 months (March 2009-May 2011).
If a longer bear market rally does imply a longer decline, when might prices accelerate downward?
The recently published November Elliott Wave Theorist explores the parallels between recent stock market trends and those in 1929-1933. You'll learn about several striking similarities.