Since the selloff a little more than a week ago, and the subsequent emergency Fed intervention (lowering the discount rate, inter alia) the share market has recovered strongly. It is easy to understand why people are buying. The last two Fed emergency interventions were in 1987 and 1998. In both cases, the bull market resumed and share markets rallied strongly in the ensuing months. But before you assume it is all done, a little history might be instructive.

In October 1987, the S&P 500 fell from a high of 328 on October 6th. to a low of 216 on Oct. 20th., a 34% decline. It then rallied back 18% over the following 10 trading days to a recovery high of 256 on November 3rd, and then retested the low at 221 on December 4th. Following the retest, the bull market re-established itself.

In 1998, the July high was 1187 on the 20th. By September 1, the market had fallen 21% to a low of 940. It then rallied 15% over 16 trading days to a high of 1066 on September 24th., followed by a retest and new low of 923 on October 8th. The bull market then resumed.

In 2007, the S&P 500 made a high of 1552 on July 16th. It then fell a mere 12% to a low of 1371 on August 16th. 6 trading days later, the recovery high is up 7% from the low at 1464 on August 23rd.

Leaving aside the fact that the decline so far is minor by comparison, even if the bull market is going to continue (which I beg to doubt), history says there will be a retest of the lows. If the market turns up again strongly from there, decisively passing the previous recovery high, then the bull has a new lease of life. But not now. Not yet.