Market Analysis
1920-1921 Bear Market
The 1920-1921 bear market started in November 1919 and lasted for nearly two years with the market dropping around 45%. The bear market ended in August 1921.
Charts from stockcharts.com are used to analyze all of the market cycles that have occurred over the last hundred years. Analyzing the market cycles with charts gives stock investors a visual representation of how the stock market moves over time.
The Dow Industrial Average is used to analyze the 1920-1921 bear market and all market cycles prior to 1957 (The S&P 500 index was formed in 1957 and all market cycles from 1957 are analyzed using the S&P 500 index).
100 Year Market Chart
The following chart shows the 1920-1921 bear market on a 100-year chart with the Dow Industrial Average plotted as a monthly bar chart.
Chart 100yr: 1920-1921 Bear Market
Chart by stockcharts.com
As can be readily observed from the long-term 100-year market chart, the 1920-1921 bear market is just one of many bear markets that have occurred.
The 100-year market chart also shows a 240-month simple moving average which has spent most of the last hundred years trending upwards. This shows that over the long-term the market has broadly continued higher as the moving average followed the Dow Industrial Average higher.
20-year Market Chart
The following chart shows the 1920-1921 bear market on a 20-year chart with the Dow Industrial Average plotted as a monthly bar chart.
Chart 20yr: 1920-1921 Bear Market
Chart by stockcharts.com
A 12-month simple moving average is also plotted on the 20-year market chart. The 12-month moving average is a useful indicator used in Technical Analysis for highlighting market cycles. As the 20-year market chart shows, the 12-month moving average followed the 1920-1921 bear market lower.
The 1920-1921 bear market sold down to the lows seen with the 1917 bear market and followed on from the 1918-1919 bull market.
Some pessimism did exist at that time as soldiers returned from Europe following the end of World War 1 in December 1918. The enactment of Prohibition in October 1919 may also have influenced the start of the 1920-1921 bear market.
However, this bear market was probably just a resting phase for the roaring twenties that lie ahead.
Most investors new to the stock market are under the impression that the stock market only moves in the direction of the current market cycle.
In reality, the stock market moves in cycles and alternates between bull markets (where stock prices broadly increase) and bear markets (where stock prices broadly decline).
Fortunately for investors, bull markets are usually longer than bear markets. This means that stock prices spend more time increasing in value than they do losing value.
Bull markets last anywhere from two years to around a decade, whereas bear markets are shorter and usually last a year or two and sometimes three.
3-year Market Chart
The 1920-1921 bear market is shown again with a shorter time-frame on a 3-year chart plotted as a weekly bar chart.
Chart 3yr: 1920-1921 Bear Market
Chart by stockcharts.com
The shorter time-frame provides more detail. As the chart shows, the 1920-1921 bear market started in November 1919 and lasted for nearly two years. The Dow Industrial Average lost around 45% during this period with the bear market ending in August 1921.
Market Chart: Rallies and Pullbacks
The 1920-1921 bear market is shown again with a 3-year line chart and two moving average indicators.
Chart MA: 1920-1921 Bear Market
Chart by stockcharts.com
The above line chart for the Dow Industrial Average shows a 52-week (long-term) and a 12-week (short-term) simple moving average.
The 52-week moving average (purple line) followed the bear market lower which bottomed in August 1921.
The 12-week moving average (orange line) broadly identifies the rallies and pullbacks that occurred.
The stock market sold down steadily from November 1919 (noted on the chart as RH - which stands for Relative High) and hit a temporary bottom in December 1920 (noted on the chart as RL - Relative Low).
The Dow Industrial Average then briefly rallied until May 1921 (the 2nd RH on the chart). These rallies are commonly referred to as bear market rallies as they give investors a false impression that the bear market has bottomed and the next bull market started.
The market then traded lower again given investors the impression that another long down leg was coming, but as it turned out this was only a minor sell off which bottomed slightly below the pervious sell off low. The market bottomed in August 1921 (the 2nd RL on the chart) and this was the end of the 1920-1921 bear market.
The 1922-1929 bull market then followed which started off the roaring twenties.