The Downtrend Must Be Broken By Gary B. Smith Special to TheStreet.com 4/7/01 8:00 AM ET

A few weeks ago, I did a column looking at various "bottoms" of the past. My conclusion was that contrary to popular belief, most market bottoms are quiet, dull affairs, rather than the phenomenal V-shaped recoveries that everyone seems to want.

With that in mind, I've been saying in recent columns that actions like we had Thursday were most specifically not bottoms. (Although they could certainly be the start of one.)

To back up my conclusions, let me show you three different charts, from three different bear markets. What I want you to see is that a great up day doesn't necessarily mean the end of a bear market. Nor does coupling that great up day with high volume.

If there's one common factor I've seen in bottoms -- or at least the beginning of them it's that the current downtrend must be broken to the upside. And because that downtrend is usually not a 90-degree angle, it's rare, then, that a sharp rebound marks the end. There's simply not enough time to repair the damage inflicted.

In fact, even if the downtrend is broken, the market or economy might be so rocky that another test of the lows is required. That was certainly the case in 1974.

OK, here are the charts. I hope they'll clarify my thoughts.

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My point? A great up day feels very good. But it usually isn't the end of the bear market. Instead, watch for that downtrend to be broken. That's when I would enter and become a bull. (Even then, you'd have to keep your fingers crossed!)

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