COMPARISON TO 2000-2002 BEAR MARKET (Murphy)

The current bear market has lasted only half as long as the 2000-2002 bear and has lost only half as much ground. Some have asked if this could be a repeat of that earlier market drop. I don't have the answer to that, but I do think there's a good chance that the market will bounce during the fourth quarter. Take a look at Chart 3. It compares the S&P 500 (green line) to the VIX Index (red line) during the earlier bear market. The VIX spiked during the the third quarters in 2001 and 2002. Both spikes led to bottoms in the September/October period and fourth quarter rallies. The 2001 rally, however, lasted only until the first quarter of 2002 before turning back down. The October 2002 bottom turned out to be the real thing. I don't know which of those two scenarios matches the current situation. In either case, however, there's a good chance that the market is approaching a climax bottom of some type which could lead to a fourth quarter rebound. And it should coincide with a peak in the VIX. That's one of the reasons why I advised earlier in the week not to turn too bearish at this point.