Are We Now Officially In a Bear Market?

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Oct. 5, 2011, 12:01 a.m. EDT

By Mark Hulbert, MarketWatch

CHAPEL HILL, N.C. (MarketWatch) "” Are we now officially in a bear market?

The answer, maddeningly, is unclear, since only an intra-day basis "” but not on a closing basis "” has the broad market exceeded the 20% drop that is widely considered the criterion for a major bear market.

/quotes/zigman/3870025 SPX 1,123.95, +24.72, +2.25%

But what if we are now in a bear market? How long can we expect it to last?

My review of the historical record contains both good and bad news. The good news is that there is no statistical trend in the length of recent bear markets that would lead us to expect this bear market to be abnormally long.

This should be reassuring to those who are spooked by the alarmist predictions that the U.S. economy is now stuck in the middle of a multi-decade downturn like Japan has been in for the last 20+ years.

Bear markets since 1900.

The bad news: The average bear market since 1900 has lasted 410 days, according to calculations conducted by Ned Davis Research. Since 158 days have already elapsed since the bull market high on April 29, that means that "” if this is a bear market and its length is precisely average "” we have another 252 days to go.

That places the bottom of the bear market on June 12 of next year.

How much further down does the stock market have to go if this turns out to be an average bear market? Again according to Ned Davis Research, the average bear market loss since 1900 has been a decline of 31.5%.

Again on the assumption that we're in a bear market and its duration and severity are average, this means the Dow Jones Industrial Average /quotes/zigman/627449/delayed DJIA +1.44%   will hit bottom at 8,775 "” nearly 2,000 lower than where it stands today. In terms of the S&P 500 index /quotes/zigman/3870025 SPX +2.25%  , the bottom would be at 934, nearly 200 points below current levels.

Ouch.

If that turns out to be the case, followers of the so-called Halloween Indicator (a.k.a. "Sell in May and Go Away") might want to sell in November and go away as well.

/quotes/zigman/627449/delayed Add DJIA to portfolio DJIA Dow Jones Industrial Average 10,808.71 +153.41 +1.44% Volume: 267.44M Oct. 4, 2011 4:30p var embeddedchart70394702Chart = new EmbeddedChart('#embeddedchart70394702', NormalChartStyleNoDecimals, 240, 80, '1dy', '5mi', null, null, null, 'US:DJIA'); jQuery.data($('#embeddedchart70394702').get(0), 'embeddedchart', embeddedchart70394702Chart); /quotes/zigman/3870025 Add SPX to portfolio SPX S&P 500 Index 1,123.95 +24.72 +2.25% Volume: 0.00 Oct. 4, 2011 5:16p var embeddedchart124732823Chart = new EmbeddedChart('#embeddedchart124732823', NormalChartStyleNoDecimals, 240, 80, '1dy', '5mi', null, null, null, 'US:SPX'); jQuery.data($('#embeddedchart124732823').get(0), 'embeddedchart', embeddedchart124732823Chart); //$(document).ready(function() { var storywidth = $('#mainstory').width(); var maxwidth = storywidth; $('#maincontent pre').each(function (index, value) { var thiswidth = $(value).width(); if (thiswidth > maxwidth) maxwidth = thiswidth; }); var offset = maxwidth - storywidth; if (offset > 0) { var margin = 13; var blanketwidth = $('#blanket').width(); var contentwidth = $('#maincontent').width(); $('#blanket').width(blanketwidth + offset + margin); $('#maincontent').width(contentwidth + offset + margin); $('#mainstory').width(storywidth + offset + margin); } //});

Mark Hulbert is the founder of Hulbert Financial Digest in Annandale, Va. He has been tracking the advice of more than 160 financial newsletters since 1980.

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Mark Hulbert is editor of the Hulbert Financial Digest, which since 1980 has been tracking the performance of hundreds of investment advisors. The HFD... Expand

Mark Hulbert is editor of the Hulbert Financial Digest, which since 1980 has been tracking the performance of hundreds of investment advisors. The HFD became a service of MarketWatch in April 2002. In addition to being a Senior Columnist for MarketWatch, Hulbert writes a monthly column for Barron's.com and a column on investment strategies for the Journal of the American Association of Individual Investors. A frequent guest on television and radio shows, you may have seen Hulbert on CNBC, Wall Street Week, or ABC's World News This Morning. Most recently, Dow Jones and MarketWatch launched a new weekly newsletter based on Hulbert's research, entitled Hulbert on Markets: What's Working Now. Collapse

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