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The Dow gains 300 points? It 's a bad sign

I hope no one is too exalted for the rise of 3% scored the other day by the indices of our house. It was a bad sign, I thought immediately. But I did not know how to say it. Then, thanks to the blog The Big Picture of Barry Ritholtz, I solved my problem.

Ritholtz cites fact analysis of David Rosenberg, North American economist for Merrill Lynch , showing that these haunted leaps forward occur only in a bear market , ie in a bear market .

The rise of 3% of the Milan Stock Exchange coincided in Wall Street, with a rally of 331 points, or 2.9%, Dow Jones Industrial index .

But rises to 300 or more points in the Dow Jones in the history of American markets, there is no trace in the last two bear market, the current and that of 2000-2002.

To be precise, the day before yesterday was the sixth rally of more than 300 points since the downward cycle began last October (one-seventh to rally 336 points is set up as a borderline case , as it has took place on September 18, just before the market changes direction). While in 2000-2002, when the Dow lost a total of 38% of its value, the increases of this magnitude were even 12 (for details, see the table at the end). In the long

bull market lasted from autumn 2002 to autumn of 2007 to rally to 300 points there is no trace. The reason is that movements so exaggerated, in just one sitting, they are an expression of the high volatility which is a typical characteristic of bear markets.

The same lesson can be extended to rally bank stocks, which Wall Street has recovered about 30% by mid-July, when the U.S. Treasury and the Fed intervened in support of Fannie Mae and Freddie Mac , the two giants sick of mortgage credit.

Rosenberg observes that in 2000-2002, when the eye del ciclone c’erano i titoli tecnologici, l’indice Nasdaq arrivò a perdere quasi l’80% del suo valore dopo aver percorso ben tre fasi di concitati rialzi superiori al 30%.

Insomma, i bear market rally possono anche impressionare (e far male a chi specula troppo incautamente al ribasso). Ma sono fuochi di paglia.