Practical Analysis: Stocks with Rallies or Declines Lasting Less Than 2–3 Months

Generally, in a bull market, stocks in an uptrend will not correct for more than 2–3 months, and prices typically resume their upward trend by the third month. Conversely, if the trend is downward, prices will continue falling by the third month.

Case Study: Chrysler
The stock rose from a low of $28 in March 1936 to a peak of $140.5 by October 1938. During this uptrend, no decline lasted longer than two months consecutively.
After peaking at $140.5, it fell to $26 by November 1929, with no rally exceeding two months. This exemplifies the rule:

• In April 1930, it rebounded to $43 but resumed declining, hitting $5 by June 1932.

• Throughout the downtrend, no sustained rally lasted beyond two months.
  
  

Dow Jones Railroad Average

• September 1929: The index peaked at 189, then collapsed during the market panic.

• April 1930: It rebounded to 158, but by June 1932, it plunged to 13 (below its 1896 low of 42).

• Critical Signal: When the index broke below its all-time low (42), it signaled an intensified downtrend. Investors should short railroads until the index or individual stocks bottomed and reversed.
  
  

Bear Market Weakness
In bear markets, a key sign of weakness is rallies lasting only 6–7 weeks or barely 2 months, with no follow-through in the third month. For example:

• During the 1930–1932 decline to 13, no rally exceeded two months.

• From the February 1931 high (111) to the 13 low, rallies never lasted even a full month.
  This reflects extreme weakness, foreshadowing severe selling pressure and a true panic-driven bear market.