Would it join the Dow Jones Industrial Average in breaking to new bear-market lows, lower than the Nov. 20 level that up until recently had marked the low point of the bear market that began in October 2007?
As fate would have it, of course, it was not even close. By the close of trading, the S&P 500 was more than nine points below its Nov. 20 closing low.
That's depressing enough news, of course.
But by focusing on whether the Nov. 20 lows would be broken, investors may have overlooked something else that happened Monday that is even more momentous from a longer-term point of view: The Dow broke below its closing low of the 2000-02 bear market; the S&P 500 had achieved that dubious feat last Friday.
Technicians will no doubt endlessly debate the meaning of this in coming days. But one intriguing consequence of the 2002 lows' being broken is that the stock market's decline between 2000 and 2002 begins to appear less and less as a bear market and more as a mere correction within a great bull market that began in the early 1980s.
According to this retelling, that bull market lasted 25 years and did not finally end until October 2007.
What difference does it make how we retell the story of what has passed? In one sense, of course, it makes no difference. After all, regardless of what you call it, the stock market fell some 40% between 2000 and 2002.
But, in another sense, this retelling of history carries great significance, since it reveals a lot about the bear market we're suffering through right now. According to some technical analysts, prominently including Richard Russell, editor of Dow Theory Letters, a major bear market can be expected to obliterate between one-half and two-thirds of the previous advance.
I'll do the math for you: We've already erased around half of the bull market that began in 1982. A two-thirds retrenchment would take the Dow down to around the 5,200 mark.
By the way, this sobering retelling of the stock market's history over the last three decades isn't something that technicians are cooking up only now, after the stock market has already declined by 50%.
Russell outlined just such a possibility nearly a year ago, in April 2008, when the Dow was trading at relatively lofty levels around 12,600. In entertaining the notion that the 2000-02 bear market was actually a mere correction within an ongoing bull market, Russell wrote: "Somewhere ahead we're finally going to enter a true primary bear market, maybe one of the greatest and most tragic in history. That future bear market will end with something we haven't seen since the 1980 to 1982 period, and I'm talking about great values in stocks. And when I say great values I'm talking about blue-chip stocks selling in single-digit price/earning ratios while at the same time providing dividend yields of 6-7-8%, the kind of yields we last saw at the lows of the early 1980s."
The bottom line? On this retelling, we should have expected the bear market that follows an unprecedented bull market would be just as momentous.
In other words, we should not have been surprised.
Mark Hulbert is the founder of Hulbert Financial Digest in Annandale, Va. He has been tracking the advice of more than 160 financial newsletters since 1980. *Courtesy of MarketWatch
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