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Characterizing S&P 500 Index Bear Market Rallies

| | Posted in: Volatility Effects

A subscriber asked about frequency, magnitude and duration of bear market rallies. To investigate, we employ the S&P 500 Index and consider three ways to define a bear market:

  1. From the day the index is first down over 20% from a prior peak until the day it closes no more than 20% down (< -20% Drawdown).
  2. From the day the index is first down over 30% from a prior peak until the day it closes nor more than 30% down (< -30% Drawdown).
  3. From the day the index crosses below its 200-day simple moving average until the day it crosses back above this moving average (SMA200).

Based on bear market statistics for these three definitions, we then look at ways to characterize bear market rallies. Using daily S&P 500 Index closes from the end of December 1927 through March 2020, we find that:

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