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The Future Direction of the US Stock Market

October 13, 2008

The US stock market has declined nearly 50% since it entered its bear phase one year ago. Everyone who invested into the US stock market must want to know where it will be headed in the future.

The US stock market has experienced seven bear phases since 1900. After we compared this bear market with all previous ones, we found out that the development of this bear market has been quite similar to the bear market during great depression from February 1937 to April 1942.

The following chart showed the S&P 500 price changes for all the bear markets since 1900.

The red line showed the S&P 500 index char from February 1937 to April 1942. The dark blue line showed the S&P 500 chart from October 2007 to October 2008. Gray lines are the S&P 500 charts for other bear markets.

The US great depression lasted 5 years and 2 months. The stock market lost 62% of its value during this period of time. But please notice that the market lost 53% during the first 13 months after the Great Depression started and bounced back 80% in the following 10 months.

Now the bear market has entered 12 months and the S&P 500 has lost 42.08% so far. The trend of these two charts are quite similar up to this points.

If history repeats itself, we do believe that the market is close to its bottom. Once we saw the real bottom, the market may bounce back 100% from its low.

 

 

   
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