Just another bear-market rally? History has seen plenty

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Wall Street was happy to go home a winner today, with many major stock market indexes rocketing more than 10% in the session from Monday’s 5 1/2-year lows.

But coming just two weeks after the last huge one-day gain -- which quickly gave way to another wave of selling -- today’s surge was a reminder that bear markets usually are peppered with spectacular, but brief, rallies.

That’s the nature of the beast: It tries to pull in bargain-hunting investors, only to maul them again.

On no particular news, the Dow Jones industrial average rebounded 889.35 points, or 10.9%, to 9,065.12 today. It was the Dow’s sixth-biggest one-day percentage advance in history.

Of the index’s 10 biggest one-day rallies (including today’s jump), four occurred during the devastating bear market that began on Sept. 4, 1929, and ended on July 8, 1932, amid the Great Depression.

In other words, those were four major false alarms that the worst was over, while the Dow continued on its way to a peak-to-trough loss of 89%.

Still, it’s also true that large one-day advances often occur as new bull markets are getting underway. The Dow’s biggest-ever one-day rally was on March 15, 1933, when it surged 15.3% -- on its way to a 117% net gain by mid-July of that year.

Where are we in this now 1-year-old bear market? With the credit crunch still severe, and the worst of the economic recession almost certainly ahead of us, one big question is how many investors are waiting to sell into any rally that tries to get up a head of steam.

I hear plenty of money managers these days saying they want to buy, but they’d prefer to wait for the market to move up 15% or so from its lows and hold on to that gain -- signaling that the selling has exhausted itself, at least for the time being.

Wednesday will be a good test: If the market can rally again, it will be the first two-day advance since Sept. 25-26.