| Anything can happen in the stock market in the short term. Expect
both increases and declines.
A market correction is a reversal of the prevailing price movement
trend for a security. A "correction" is most often used
to describe a decline after a period of rising prices.
A market crash is commonly defined as a 20% decline in a single
day or over several days. On October 19th 1987---referred to
as "Black Monday"---the DJIA plummeted 22.6% in a
single session. On 10/10/08, the DJIA closed at 8451.19---around
a 22% cumulative loss over 7 trading days. Market crashes do not
necessarily lead to bear markets. On 10/13/2008, the DJIA closed
at 9387.61--the 936.42 point increase equated to an 11% single-day
gain. Up to that point, it was the largest single-day gain in the
history of the American stock market since the 1930's. On 10/15/2008,
the DJIA closed at 8577.91. On 10/16/2008, the DJIA closed at 8979.26.
On 10/31/2009, the DJIA closed at 9325.01. On 11/21/08, the DJIA
closed at 7552.29. "Testing
the bottom" is
a term meaning the market fluctuates up and down until a low point
A bear market is a period of decline in multiple broad market indexes
such as the Dow Jones Industrial Average (DJIA) and the Standard & Poor's
500 Index (S&P 500) over several months---at least a two-month
period. Recessions typically average about ten months in length.
Stocks generally bottom out in around the sixth month. Predicting
the duration of a recession is typically little more than an "educated
guess." Our current recession started in December 2007 and may
last 18 months. It could end around June 2009. At 18 months, it
would be the longest recession since the Great Depression. In the
meantime, there should be
financial buys for investors at unusually low price points.
Someone once said there are three phases to a bear market:
First phase---a few people see that things are getting worse.
Second phase---most people see that things are getting worse.
Third phase---everyone is convinced that things can only get
The third phase is when consumer confidence is at its lowest.
When consumer confidence is at its lowest, it is typically a good
time to purchase securities.
In good markets and bad markets, well-balanced diversified portfolios
invested for the long-term are the key to financial success.