Cars on the road

Differentiating bear market rallies vs meaningful inflection points

November 2, 2022
Market Navigation

Bear markets are not linear – they typically witness numerous rallies

From January 3rd to the recent low on October 14, the the FT Wilshire 5000 had registered a drawdown of -25.9% the sixth largest since 1980. The key observation about bear markets is that they are not linear – in fact they often move in a sawtooth manner marked by numerous bear market rallies. This has been observable in the trajectory of the FT Wilshire 5000 returns this year (see chart below). Bear market rallies reward the ‘sell the bounce’ discipline, the antithesis of ‘buy the dip’.

Exhibit 1: Bear markets typically see numerous tradeable rallies

Source: Wilshire and Refinitiv. Data as of October 31, 2022

Just under half the days in a bear market register positive returns

To reiterate the point that bear markets are not linear we have measured the trading pattern of bear markets (lasting more than three months) registered by the FT Wilshire 5000 since 1980. This shows that around 45% of the trading days witness upward moves. The bear market is driven by the compounding effect of the average daily move in a down day being -1.4% vs the average daily move on an up day being +1%.

Exhibit 2: The trading pattern of bear markets

Source: Wilshire and Refinitiv. Data as of October 31, 2022

How to differentiate a bear market rally from a sustained inflection point?

If bear markets witness numerous bear market rallies, how can we identify when a rally is marking a nadir followed by a sustained positive move?

One answer to this is to wait for key technical signal confirmation. The ‘Golden Cross’ (the positive intersect of the 50-day moving average with the 200-day moving average where the latter has bottomed) is a useful tool aiding the identification of major market inflection points.

Exhibit 3: The ‘Golden Cross’ helps identify key inflection points

Source: Wilshire and Refinitiv. Data as of October 31, 2022


Philip Lawlor

Managing Director,  Market Research (Benchmarks)

Important Information

Wilshire is a global financial services firm providing diverse services to various types of investors and intermediaries. Wilshire’s products, services, investment approach and advice may differ between clients and all of Wilshire’s products and services may not be available to all clients. For more information regarding Wilshire’s services, please see Wilshire’s ADV Part 2 available at

This material is intended for informational purposes only and should not be construed as legal, accounting, tax, investment, or other professional advice.

This material contains proprietary information of Wilshire. It may not be disclosed, reproduced, or otherwise distributed, in whole or in part, to any other person or entity without prior written permission from Wilshire.

This material represents the current opinion of Wilshire and is subject to change without notice. Wilshire assumes no duty to update any such opinions. Wilshire believes that the information obtained from third party sources contained herein is reliable, but has not undertaken to verify such information. Wilshire gives no representations or warranties as to the accuracy of such information, and accepts no responsibility or liability (including for indirect, consequential or incidental damages) for any error,omission or inaccuracy in such information and for results obtained from its use.

This material may include estimates, projections, assumptions and other "forward-looking statements". Forward-looking statements represent Wilshire's current beliefs and opinions in respect of potentialfuture events. These statements are not guarantees of future performance and undue reliance should not be placed on them. Such forward-looking statements necessarily involve known and unknown risks and uncertainties, which may cause actual events, performance and financial results to differ materially from any projections. Forward-looking statements speak only as of the date on which they are made and are subject to change without notice. Wilshire undertakes no obligation to update or revise any forward-looking statements.

Wilshire Advisors LLC (Wilshire) is an investment advisor registered with the SEC. Wilshire® is a registered service mark. All other trade names, trademarks, and/or service marks are the property of their respective holders.

Copyright © 2023 Wilshire. All rights reserved.

See more

We’re here to help

Wilshire has been applying highly tested theories and approaches to our client solutions since 1981.

Our clients rely on us to improve investment outcomes for a better future.

Contact us