Quiz: When do the biggest up days happen in the markets?
Is it during the run up of the internet bubble in 19990- 2000?
Is it in the run up of the Real Estate and Credit Bubble in 2007?
Is it in the run up of the Commodities Super Cycle between 2003 and 2007?
If you guessed one of them you guessed wrong. The biggest up days (percentage wise) happen in bear markets.
With regards to US Stocks:
- 13.10.2008: + 14.52 % up in one day
- 28.10.2008: + 11.69 % or
- 2001: Internet bubble bursting
- 1998: Long Term Capital Management blow up
- 1997: Asian currency crisis
In bear market volatility usually increases. This is probably because fear is a more powerful emotion than greed. As volatility increase the daily range (high – low) usually increases and the daily variations (up or down) most often increases. So you have these sharp bear market rallies after a severe sell off. They happen either because of short covering or bargain hunting. They are very treacherous. A large percentage up day in a bear market does not mean that the bear market is over and you as an investor should be very careful.
As we are currently in a bear market in worldwide equities we should expect aggressive rips to the upside. Due to the macroeconomic problems worldwide you should not get your hope up if such a rally occurs. These rallies should be rather selling opportunities. So don’t get fooled and sucked into a counter trend rally!