Market Analysis
1953 Market Correction
The 1953 market correction occurred during the 1949-1956 bull market with the market losing 13% over an 8-month period.
Market corrections are similar to bear markets, but are less severe. For the purposes of this analysis, bear markets have a minimum decline of 20% over a minimum period of six months (most last for a year as a minimum) with at least one bear rally (which are short rallies within a bear market).
Since this market cycle lost 13% over an 8-month period and did not have any bear rallies, this cycle is more accurately referred to as a market correction rather than a bear market.
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 1953 market correction 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 monthly 100-year bar chart shows the 1953 market correction which occurred during the 1949-1956 bull market.
Chart 100yr: 1953 Market Correction
Chart by stockcharts.com
As can be readily observed from the long-term 100-year market chart, the 1953 market correction is just one of many corrections and bear markets that have occurred over the last one hundred years.
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 1953 bear market on a 20-year chart with the Dow Industrial Average plotted as a monthly bar chart.
Chart 20yr: 1953 Market Correction
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 flattened during the 1953 market correction, while the moving average spent most of the 1949-1956 bull market sloping upwards.
The 1953 market correction was really nothing more than a larger than normal pullback and only temporally paused the bull market.
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 1953 market correction is shown again with a shorter time-frame on a 3-year chart plotted as a weekly bar chart.
Chart 3yr: 1953 Market Correction
Chart by stockcharts.com
The shorter time-frame provides more detail. As the chart shows, the 1953 market correction occurred during the 1949-1956 bull market. The Dow Industrial Average lost 13% over an 8-month period.
Market Chart: Rallies and Pullbacks
The 1953 market correction is shown again with a 3-year line chart and two moving average indicators.
Chart MA: 1953 Market Correction
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) flattened during the market correction that occurred during the 1949-1956 bull market.
The 12-week moving average (orange line) broadly identifies the rallies and pullbacks that occurred.
The stock market sold down steadily from December 1952 (noted on the chart as the 5th RH - which stands for Relative High) and bottomed in August 1953 (noted on the chart as the 5th RL - Relative Low).
While the 1953 correction looks like a pullback on the chart, the reason it's considered to be a correction is that the market pulled back for eight months. This is a very long time for a pullback, which usually last from a month up to three or maybe four months.
For comparison, the chart also shows four pullbacks that during 1951 and 1952 which were shorter in duration and more typical of market pullbacks.
The 1957 bear market finally ended the 1949-1956 bull market, whereas the 1953 market correction was merely a more severe pullback within that bull market.