Many folks ask, when are we in a bear market? What indexes are in a bear market at this time? The commonly referenced measure as to whether we are in a bear market or not, is a 20% decline from the high.
I use closing figures for the calculation. And as for the 20% rule, I guess its better than nothing. In reality a bear market will start to reveal itself by lower highs and lower lows and a general deterioration in overall market sentiment.
So once a 20% decline is achieved then is the bear market considered to start from that point forward? No, the bear market actually began at the high and has been underway since then, but confirmed by the 20% decline.
There are 5 major indexes that I review on a regular basis. They are: Dow Jones Industrial Average (INDU) with 30 stocks, S&P 500 Index (SPX), Nasdaq Composite Index (COMPX) with 3000+ stocks, Russell 2000 Index and the NYSE Composite Index with 1900+ stocks. You will see an interesting correlation between the number of stocks in an index and the bear market.
So who entered the realm of the bear first? In the video below, I review each of those indexes and show who is considered to be in a bear market at this point in time.
So the DJIA and SPX have not hit bear market status yet. They got close but didn’t hit the 20% mark. I believe the broader indexes are leading and that the DJIA and SPX will catch up.
Once you know that we are in a bear market, adjust accordingly if you haven’t already. And remember bear market rallies can be swift and strong. But the rallies usually don’t last.
And once you’ve entered the bear’s realm, some pretty heavy duty selling can still lay ahead. In the 2007 – 2009 decline, the SPX wasn’t considered to be an official bear until July 9, 2008. And that bear didn’t end until March 9, 2009, with a whole lot of angst in between. And it can last a whole lot longer as the 1929 to 1932 bear market can attest.