Friday, February 27, 2009

Major phases of a bear market

Historically, major bear markets have also followed distinct patterns.

1. First phase
There is a sharp initial fall that removes much of the 'froth' from the market.

2. Middle phase
There is a strong rally in prices for several months, which may lull some investors into thinking that the bear market is over. The rallies can be dramatic, but have lower trading volume than the initial sell-offs. And the advances tend to be concentrated on a few selected stocks, not the whole market.

3. Third phase
There is a long slow downward grind in prices, accompanied by low volume and periodic false dawns until the bear phase ends quietly as share valuations reach rock bottom. At this point, few investors from the earlier buoyant phase in the market are interested in anything other than the most conservative investments.

Which phase are we in?

Via Investment Bloggers' Digest

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