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Retirement Weekly: How bear markets trick gullible investors

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MarketWatch
By Mark Hulbert

Bear markets like to trick you into thinking they have come to an end.

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They do that by mounting explosive one-day rallies. Those jumps more often than not turn out to be traps that lure the gullible back into the market just as its about to turn down again. Bear markets constantly are playing Lucy to investors Charlie Brown, promising not to yank the football away just when youre about to kick itand then doing exactly that.

This buy-high sell-low behavior is why many investors perform even worse than index funds during major declines. Today, given that the major market averages are in danger of slipping into official bear-market territory, its more important than ever to understand this mischievous behavior from Mr. Market.

Consider the 100 best one-day rallies mounted by the S&P 500 SPX, -2.47% since 1928. You would be excused for thinking that such rallies are most likely to occur during bull markets. Alternately, you might believe that such rallies occur randomly across both bull and bear markets alike. The last thing youd suspect is that these big one-day rallies are more likely to occur during bear markets.

Continue read on marketwatch.com

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