“Bear markets constantly are playing Lucy to investors’ Charlie Brown, promising not to yank the football away just when you’re about to kick it — and then doing exactly that,” columnist MktwHulbert writes.
They do that by mounting explosive one-day rallies. Those jumps more often than not turn out to be traps that lure the gullible back into the market just as it’s about to turn down again. Bear markets constantly are playing Lucy to investors’ Charlie Brown, promising not to yank the football away just when you’re about to kick it—and then doing exactly that.This buy-high sell-low behavior is why many investors perform even worse than index funds during major declines.
Furthermore, as the chart also shows, the probability of a big daily jump occurring during a bear market is almost as high as the probability of a big daily plunge.I was prompted to conduct this analysis by a fascinating report from Cornell Capital into the bear market concentration of the biggest rallies in the Nasdaq Composite index COMP, +1.43%. That concentration is even more pronounced than it is for the S&P 500.
Nevertheless, an incredible 80% of the forty biggest one-day rallies in the Nasdaq Composite occurred during one of these three bear markets. That’s nearly 10 times the percentage you’d expect if those rallies occurred randomly.
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