What Does a Rally REALLY Tell You?

Please join me to consider a time in the stock market that lasted just short of three years: 32 months, to be precise. During this period a series of powerful rallies stand out clearly on a price chart. The shortest of these rallies was four weeks, the longest more than five months.
 
I can even list seven of these rally episodes, with the number of calendar days and percentage gains.
 
1. 152 days, +52%.
2. 28 days, +11%.
3. 77 days, +19%.
4. 69 days, +27%.
5. 31 days, +30%.
6. 35 days, +39%.
7. 28 days, +27%.
 
This information obviously seems to paint a bullish picture: the stock market was in double-digit rally mode during 43% of the total calendar days in question.
 
But in fact, these rallies were the moments when the bear was catching his breath. The overall period was the Dow Industrials from November 1929 to July 1932, and it devastated investors. The Dow lost 80% of its value -- including all the rally days listed above.
 
I said that these rallies stand out on a price chart, and indeed they do -- it's just that the declines stand out even more. There's virtually no "sideways" action. Prices moved rapidly in one direction or the other.
 
You can see the chart for yourself in the recently-published issue of Bob Prechter's Elliott Wave Theorist. It's one of the two charts he includes in a comparison/contrast of that bear market to today's bear market.