The 28% Rule
by Arthur A. Merrill, C.M.T.
A bear market is interrupted by rallies, which cheer the spirits but are then followed by a resumption of
the bear market. Finally, one of the rallies turns out to be the first upswing of a new bull market, and
prices begin to zigzag upward.
Is there any characteristic of the first bull swing that differentiates it from the preceding bear market
rallies? We'll know that the tide has turned after prices really start to make higher highs and higher lows,
but can we get the news earlier?
Yes. I've discovered that the simple magnitude of the first bull swing is more enthusiastic than the
preceding rallies in the bear market.
To eliminate a lot of noise, I ignored all moves of less than 5%, and then compared the rallies in 19 bear
markets with the first upswing of the following bull markets.