The FTSE 100 was in a trading range of (roughly) 5600 to 6100 for the past two months.
Last week's collapse of American investment bank Bear Stearns placed enormous strain on the stock market. As we file this column early Monday morning march 17, shares have opened very weakly, breaking down through the bottom of the trading range.
Investors must now address an important issue: Is current weakness a temporary problem? Will shares soon recover? Will the trading range survive?
But there is an even bigger question lurking in the background. Which way will prices move once the trading range comes to an end?
Optimistic investors fall into two camps. Some hope we are currently enduring a temporary bad patch. A follow-up rally will soon kick in.
Others hope this sell-off will lead to a re-test of January 23's intra-day closing price of 5339 on the Footsie. If this level holds on a re-test and prices bounce upward, it could be a signal that the bear market of 2007-08 is over.
Fingers crossed that the optimists are right. Unfortunately, history provides a different perspective. If the past is any guide, the current bear market probably has further to fall. The reason is that long-running bull markets are extremely likely to be followed by painful declines that are much steeper than what has been endured to date. It is a trend that has run for a century
Here is evidence.
Up through 2003, there were 21 separate UK advances since the Roaring '20s, almost 100 years ago. Call them bull markets if you like. Or solid rallies. Or lengthy sustainable advances. Whatever you call them, there were 21 in total.
They varied in length. Fourteen ran out of steam within 600 trading days and seven ran longer.
Most of the 14 short-running bull markets were followed by downturns that were relatively modest by bear market standards. Investors often suffered a total decline of less than 25 per cent. Bigger downturns tended to be an exception to the rule.
But declines that followed the seven longer running bull markets were cut from a different cloth. Each was more painful. Three were in the 25-30 per cent range, two were drops of 31-40 per cent and two were in excess of 40 per cent.
Which brings us to the bull market of 2003 to 2007, number 22 in the series. It ran for 1,075 trading days when it peaked last June. Without question, it qualifies as another long-runner.
We have no idea how big the current downturn will eventually turn out to be. No one does. But if history is any guide, the total decline will be at least 25 per cent.
Thus far, shares slipped from their June 2007 peak by 21 per cent at the intra-day low on January 22.
If the past is any guide, look for a drop of at least 25 per cent by the time this bear market comes to an end. This would be equal to a drop on the FTSE-100 to around 5050 or lower.
Here's hoping history is wrong this time around.