ETF Trends
ETF Trends

Most of the major indexes ended lower today, capping a volatile and losing week for stocks and exchange traded funds (ETFs).

It could have been worse, though. The Dow dropped nearly 700 points at the opening, before fluctuating wildly in the last hour to close down about 125 points, reports Tim Paradis for the Associated Press. The Dow has lost 21% in 10 days of trading, and it’s the worst weekly percentage drop since its creation 112 years ago.

Historically, this slump could wind up being one of the worst.

Aaron Task for Tech Ticker notes that one analyst, John Roque, says this crash is “more insidious” than that of 1987. Both the Dow Jones Industrial Average and S&P 500 are off their 2007 highs by more than 40%. Their plunge is beginning to rival the bear market of 1973-’74, which saw the Dow fall 45% in two years.

It takes time to make a recovery, Roque said, and that expecting a full recovery immediately is like expecting an injured basketball player to start playing at full strength again.

It’s useful to analyze past bear markets and their recovery times. Roque notes that from 1909 to 1919, the Dow was just about flat. After the 1929 peak, the Dow didn’t hit a new all-time high for nearly 30 years. And from 1965 to 1982, the Dow was essentially flat.

In other words, be patient. This could take some time.

With the market plunge, inevitably investors come out wanting to know when the bottom has been hit so they can start buying again. Catherine Rampell for the New York Times says that after the tech bubble burst, the S&P 500 saw a peak in October 2007, so it looks like we might have a few years to go.

As for when to get in, we use the 200-day moving average to decide which trends are there.

  • Diamonds (DIA) (green line)
  • SPDRs (SPY) (black line)

Dow Jones, S&P 500

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.