Bear market or just a correction?

The market downturn of the past couple of days is most likely to be a healthy correction in a longer term bull market, according to research conducted by Simon Ward of New Star Asset Management. The research examined the performance of the FTSE 100 following the three great bear markets of the twentieth century (1929-1932, 1936-1940 and 1972-1974), and applied their trends to the rally following the recent bear market of 2000-2003.

Remarkably, the current recovery, from March 2003 to February 2007, mirrors very closely that of the average of the “three bears” of the twentieth century. The market has continually corrected to the forecast when it has got ahead of itself, as was the case in May 2006. By 20 February 2007, the FTSE 100 had climbed above the forecast once again which indicates the recent market falls are more likely to be a correction than a longer term bear market trend.

Since Simon initiated this interesting piece of research in mid 2002, the market has correlated closely with the recoveries of the three major bear markets of the twentieth century. This research is for the purpose of interest and does not necessarily constitute Simon Ward’s personal outlook for the FTSE 100.