More on Bob Farrell’s rule #8

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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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2 comments to More on Bob Farrell’s rule #8

  • Frank W

    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.

  • Dopey

    Or the reflexive rebound occurred after the October 2008 trough and the subsequent downtrend ended in March 2009???

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