Are we in a bear market? The test and the stock market crash link

What is the test for a bear market?

The common test has two conditions. The index must fall 20% or more from a recent closing high, and the fall must last at least two months, according to the measure Wikipedia describes as commonly accepted. A fall between 10% and 20% is a correction, so the 20% line is the border between the two labels.

The test is deliberately mechanical. It does not ask about causes, forecasts, or the mood of the market. That makes it repeatable: two readers who use the same index and the same dates reach the same answer. The steps below turn the test into a worksheet that takes a few minutes.

How do you check whether we are in a bear market in 4 steps?

Step one: choose a broad index and state it, such as the S&P 500. Step two: find its most recent closing high and note the date. Step three: take the latest close, subtract it from the high, and divide by the high. Step four: check how many weeks have passed since the high and whether the fall holds.

Record all four results with dates. If the fall is 20% or more and has lasted at least two months, the bear label fits. If the fall is deeper than 20% but younger than two months, label it a fall to watch and repeat the test each week. The worksheet turns a vague feeling into a dated answer.

How do you calculate the 20% bear market line for an index?

Multiply the closing high by 0.8. The S&P 500 peaked at 4,796 on 3 January 2022, so 4,796 times 0.8 gives a bear market line near 3,837. Any close below that level, held for the required time, places the index in a bear market. Keeping the line on a chart gives you a visual alarm.

Update the line whenever a new closing high appears, since the reference moves up with the index. Many readers forget this step and measure from an old peak. A fresh high resets the count to zero, and a later fall must be measured from that new reference.

How did the 2022 bear market pass the test?

The 2022 decline shows the test in action. After the 3 January peak the S&P 500 fell 21% in the first 6 months, the worst start to a year since 1970. A news report of 14 June 2022, cited by Wikipedia, declared that stocks had officially entered bear market territory, about five months after the high.

The decline continued. By October 2022 the index was down 25% from the peak, and its largest single-day drop was 4.32% on 13 September. The example shows two features of the test: the label can arrive months after the high, and a bear market can form without any single day that looks like a crash.

How does a stock market crash change the bear market test?

A crash compresses the timeline. In 2020 the Dow entered a bear market on 11 March, about 20% below its record high. Next came a fall of 9.99% on 12 March and 12.93% on 16 March, with circuit breaker halts on 9, 12, 16, and 18 March. The two-month condition was met later by the length of the episode.

After a crash day, run the test the same evening. A fall of 10% in a few sessions leaves little room, since another sharp day brings the index to the 20% line. Treat the crash day as a prompt to compute the line, note the gap, and watch the next session against it.

What does a yes or no on the bear market test tell you?

A yes tells you the index sits in a long phase of weak prices. Morningstar data cited by Wikipedia for 1926 to 2014 gives an average bear market length of 13 months and an average cumulative loss of 30%. Those averages describe the past, and your episode may run shorter or longer.

A no tells you the 20% line has not been crossed or the time has not elapsed. It does not guarantee a floor. A correction can deepen, and a crash can arrive after a calm stretch. Treat the result as a description of the present and a starting point for the next check.

What should you do after you check whether we are in a bear market?

Write the result in a log with the index, the high, the latest close, the fall, and the date. Compare it with your rules for review dates, cash needs, and rebalancing bands. This page is general information, not investment advice. A log built week by week shows the pace of change better than any single reading.

If your exposure reaches beyond one index, a 30-minute pre-diagnostic with EQOS Asia applies a structural score to your case. The score adds a view on fragility, which the price test alone cannot give, and it helps you decide where the next check should focus.

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About the author

Stéphane Jambu

President, EQOS Forecast Asia

Stéphane Jambu leads EQOS Forecast Asia and works as a consultant in e-commerce, search visibility, and AI. LinkedIn profile