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Previous Bear Market Rallies in the Dow 
(1)
DJIA.AFriday, November 28, 2008
By Anthony Kolton
Stocks have rallied over the last four trading days, and the Dow Jones Industrial Average (DJIA.A) has rallied 15.5% over that period. The index is still in the clutches of the bear - it closed at 8,726.61 below the average value over the last 200, 100, and 50 days, but the bulls are charging. The DJIA has lost 33.7% over the last two months, but the question is whether we've formed a support level in the 7,500-8,000 range and can the market find a bottom in the recent action?
Q: History suggests that we may be in for a corrective move: How has the Dow performed in the past when it has seen a four-day rally in excess of 10% after being down as of four days ago by at least 20% over the previous two months?
A: According to the 10 previous occurrences of this event since October 15th, 1931, the DJIA.A has shown a strong bearish edge that peaks 11 trading days after the event. Thus, the projected date for the peak of the bearish edge relative to the current event date (Wednesday, 26 November 2008) is Friday, 12 December 2008. DJIA.A declines in 100% of the cases (10 of 10) by an average of -5.2% relative to the close on the event date. The overall return of the 10 cases is -5.2%, which, based on the close of DJIA.A on the event date (8,726.61), provides a target price of 8,272.83.
This projection provides for a corrective downswing to the last four day's of bullish rally, without busting through to new lows below the low set at 7,449.38.
Anthony Kolton2 is president of Logical Information Machines3 and Markethistory.com, Inc.
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Let variable values:
@ = DJIA_ACT
theEvent = IF
2 month percent_move of DJIA 4 days ago is less than -20
AND
4 day percent_move of DJIA is more than 10
AND
Date is after 10/15/31
THEN 1
ENDIF
Date Day m-2 t-4 t+1 t+4 t+11
10/20/1931 Tue -32.5 11.7 -0.2 -2.1 -0.1
11/09/1931 Mon -21.5 11.8 -2.4 -8.1 -15.6
01/08/1932 Fri -33.9 14.3 -1.7 4.3 -3.8
06/06/1932 Mon -38.9 10.2 -3.8 -0.8 -5.6
11/08/1932 Tue -23.8 10.3 -4.5 1.5 -7.9
06/01/1970 Mon -20.2 12.5 -0.1 -2.2 -0.6
10/10/1974 Thu -22.3 10.9 1.6 -0.9 -1.8
10/23/1987 Fri -34.8 12.2 -8.0 -0.6 -2.6
07/29/2002 Mon -24.6 13.1 -0.4 -4.6 -2.6
10/31/2008 Fri -28.9 14.1 -0.1 -6.7 -11.3
11/26/2008 Wed -33.7 15.5 NaN NaN NaN
Avg -28.7 12.4 -2.0 -2.0 -5.2
AvgPos NaN 12.4 1.6 2.9 NaN
AvgNeg -28.7 NaN -2.3 -3.2 -5.2
PctPos 0.0 100.0 10.0 20.0 0.0
PctNeg 100.0 0.0 90.0 80.0 100.0
Maximum -20.2 15.5 1.6 4.3 -0.1
Minimum -38.9 10.2 -8.0 -8.1 -15.6
StdDev 6.4 1.7 2.8 3.7 5.0
ZStat -4.5 7.3 -0.7 -0.5 -1.0
Variance 41.4 2.9 8.0 13.7 25.1
11 Occurrences |
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Links:
2 http://www.markethistory.com/staff/detail.html?s=kolton
3 http://www.lim.com/