One of the comparisons that has been in the back of my mind for quite some time now has been the 1990 and the 2022 bear markets. To understand the similiaries, we have to turn back the clock all the way to the 1980s.
The 1987 crash was a sharp and sudden decline that saw the Dow Jones Industrial Average fall over 22% on Black Monday alone. In response, the Federal Reserve acted shiftly to turn the market around. After a strong two year rally, the market declined around 20% in 1990 with support coming in near the 50-month line.
Although it took place over a three week period, the 2020 Covid decline was just as scary as the 1987 crash. The Fed response was even more dovish with the FED pumping over $1 trillion into the markets. The ensuing bull market was one of the strongest in history. However, the party eventually came to an end, and the 2022 bear market saw the S&P 500 decline over 25% from peak to trough. Like the 1990 bear market, support came in near the 50-month moving average.
The S&P 500 is currently building the right side of a large cup and handle base. Although not a perfect comparison, the S&P 500 saw similar action in 1991. If this precedent holds up, then it means that we are likely to see some basing action take place over the next few months. While this may be frustrating in the short-term, it would lay the foundation for strong trending market in the future that would provide traders with enormous opportunity. History doesn't always repeat itself, but it often does rhyme.
Risk right. Sit tight.
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