August 31, 2001

Bear Market Rally

Q: How long does a bear market rally generally last?

A: A bear market rally could last anywhere from a few days to a few weeks, at most. There's no way of knowing for sure. What's important to remember is that when you see stocks start to rise quickly in aneconomic environment like we're in right now, don't believe the hype. Stay out of stocks, or you're likely to get creamed when they inevitably start to fall.

Bear market rallies are technically driven bounces that serve to alleviate some of the downward pressure in stocks and allow a bear market to re-arm for another onslaught of selling. And although these rallies last for a short time, they can sometimes be powerful, tricking hordes of investors to jump back into stocks. That's also why they are very dangerous. Investors often buy into bear market rallies believing the worst is behind them, start scooping up stocks like crazy. But very soon thereafter, they awaken to the fact that, in reality, nothing has changed in the economy. Result: stocks start sliding once again.

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