Mon 10 Aug 2009
More on Bob Farrell’s rule #8
Posted by Prieur du Plessis under Investment, Markets, Money
I posted “Bob Farrell’s Rules for Investing” a few days ago, and these words of wisdom turned out to be popular reading material.
Given the debate as to as to whether the US stock markets are experiencing a primary (secular) bull market or a rally within a primary bear market, i.e. a so-called cyclical bull market, Farrell’s rule #8 has caused a fair amount of food for thought:
“Bear markets have three stages - (1) sharp down, (2) reflexive rebound and (3) a drawn-out fundamental downtrend.”
In an attempt to put these stages in perspective, David Rosenberg, chief economist and strategist of Gluskin Sheff & Associates, provided a graphic illustration of Farrell’s three stages, as shown below.
Click on the image for a larger graph.
Source: Gluskin Sheff & Associates - Lunch with Dave, August 7, 2009.
Whether stock markets will enter a drawn-out downtrend remains to be seen, but given the magnitude of the rebound a pullback certainly looks likely. Caution seems to be in order.
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August 11th, 2009 at 3:33 am
Thanks again, Prieur! You do a good conscientious job of presenting us with materials designed to educate us financially using both written and visual materials.
August 11th, 2009 at 1:39 pm
Or the reflexive rebound occurred after the October 2008 trough and the subsequent downtrend ended in March 2009???