Tags: Dow | average | bear | market

Data Show Now Is Not the Time to Fear a Bear Market

By    |   Wednesday, 22 April 2015 08:14 AM

Triple-digit drops in the Dow Jones Industrial Average, like we saw last Friday, prompt fears that the bear market has started. Instead of fearing large drops, investors should use them as buying opportunities because history shows a triple-digit dip isn't usually the way bear markets start.

Large drops tend to forecast more large drops only when the Dow is already in a bear market. Since 1928, the Dow has fallen by more 10 percent in a month 32 times, an average of once every 2.5 years. About three-quarters of those months have occurred when the Dow was below its 200-day moving average.

The 200-day moving average is a trend-following indicator. The average is calculated using the most recent data so that it moves with the market action. If the current closing price is above the moving average, prices are in an uptrend. A downtrend is defined as those times when the current price is below the moving average.

The Dow has spent about an equal amount of time above and below its 200-day moving average since 1928. But three-fourths of the biggest declines have occurred when the Dow was already below its moving average.

This demonstrates the importance of following the long-term trend in the stock market. Until we see the Dow move below is 200-day moving average, we should make investment decisions based on the fact we are in a long-term bull market.

After the Dow turns down, we should take protective measures, but until then we should continue to buy the dips.

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MichaelCarr
Triple-digit drops in the Dow Jones Industrial Average, like we saw last Friday, prompt fears that the bear market has started. Instead of fearing large drops, investors should use them as buying opportunities because history shows a triple-digit dip isn't usually the way bear markets start.
Dow, average, bear, market
254
2015-14-22
Wednesday, 22 April 2015 08:14 AM
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