A study of Market plunges

1987 Big plunge amidst a bull market. A rally ensues right after the plunge but that isn't entirely useful since economic conditions are much different than they are now.

1973 A double bottom and then a rally making up the entire plunge.

Two plunges from the late 30's, two rally's ensure - eventually making up more than half of the plunge.

Of course no plunge study would be complete without the infamous 1929

And now a look at our current market.

It's difficult to make an absolute conclusion, but after a plunge the bias is clearly upward. The risks are in the potential for retracements. The 1937-1938 chart shows one possible pitfall. What looks like a bottom is in actuality a pause before making a new low. One comfort is that this new low is not much below the initial plunge and recovers very quickly and eventually follows with a legitimate rally that makes up more than half the plunge.

One clear warning eminates from the 1929 era. Although the market went on to rally for a few months, it then launched a long, slow brutal bear market that erased over 80% of market value. Buyer beware.