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Bear market bottoming process

Last week I posted on a Barron's article that emphasized the idea that finding a bear market low is typically "a process rather than an event."

Today I found some great charts that illustrate this point. As you click through the charts, you'll get a feel for the common bottoming process that often occurs. Sometimes the final low happens first, followed by a retest. Other times, the final low happens while retesting a prior low point. (And sometimes the pattern doesn't fit at all — that's just the reality of investing in stocks.)

One other interesting point I hadn't noticed before — over the past several decades, once the market rebounds as much as it has since the March lows, the bottom has been in. In other words, by the time you saw a 30+% rally, the new bull market was underway.

I don't necessarily trust that 100% this time around. As the "4 Bears" chart shows, rallies the size of which we're currently experiencing are certainly possible within the context of a continuing bear market. I just hadn't been aware they're so rare (i.e., none in the past six decades of bear markets).

Most readers know that we don't make predictions, mainly because we know they're mostly worthless, and we're investing from a long-term plan rather than based on short-term events. That said, I've mentally been expecting a retest of some sort this summer. Seeing this does make me consider more strongly the possibility that may not occur. I'm not going too far out on that "new bull market" branch just yet though — not with a scary chart like this reminding me that things can still get worse before they get better.

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