Violent price swings can only be found during a bear market. By taking a look back into history it is easy to find examples of grueling sell offs followed by aggressive rallies, but how substantial can they really be?
The answer lies in taking a look back at the stock market crash during the great depression.
What we are looking at are the massive price swings that take place over time. Bearish sentiment causes violent sell offs that eventually turn into rallies. These rallies always seem to be just large enough to trick some investors into believing the bull is back. And like a roller coaster before its next drop they are surprised to see the drama start all over again.
For example take a look at this Dow Jones Industrials stock chart of the 1929 - 1932 bear market provided by Tom Denham from Elliotwave.com.
UPDATE: These charts has been updated for March 2009, click to view.
Over the course of three years the price swings almost became predictable. It wasn't until the market had lost over 80% of its value that it finally found a bottom. Now take a look at the current bear market which began early 2008:
UPDATE: These charts has been updated for March 2009, click to view.
There first major difference was the initial blow to the market that back in 1930 was -49% versus today's -18%. The price swings seemed much more steep back during this time but then again we have only seen three substantial drops.
What these charts depict is the true nature of how bad bear markets can be. The emotional drama that unfolds is hard to put into perspective until each investor experiences it for themself.
Here in 2008 we have now seen the extremes of a -34% fall followed by most recently a +22% rally. I find it hard to believe that is the worst we will face.
[...] Great look at historical market swings [...]