Wide spread optimism is surfacing now that the market has managed two successive gains exceeding one percent. A Yahoo headline claims the situation is similar to last year; then prices dropped six percent in June before heading back up to set new record highs. Therefore, it claims this ‘correction’ would be over already if the 2014 drop plays out as it did in 2013.
That could be so – yet the record casts doubt on this knee jerk reaction to several strong performance days. Today’s diagram compares this top with the end of the previous two bull markets.
It reveals a quite favorable situation: currently prices have fallen to 97.3 percent of their high, whereas the 2000 top declined to 91.7 percent in 16 days and the 2007 top hit 98.9 percent. It shows also that the declines were quite gentle.
Yet prices declined precipitously before these markets hit bottoms – four years later. At that point, they had dropped to 57 and 43 percent of their highs before finally moving higher.
DJIA 1.06 percent
NASDAQ 1.69 percent
S&P500 1.33 percent
