After more than six years of hibernation, it appears as though the Nasdaq Composite is approaching the technical threshold of a bear market (20% decline from a closing high). As shown in the chart below, the index is now down 19% from its closing high last July. Last fall, the index tried to rally back and take out that prior highs but failed just about 1% shy of it. From there, it has been all downhill.
In order for the Nasdaq to hit the 20% bear market threshold from its high in July, the index would have to close below 4,175, which is less than 45 points from current levels. So, how have prior pullbacks of 20% played out for the Nasdaq? Since its inception, there have 15 prior bear markets for the Nasdaq. Of those periods, the average decline has been 36.79% (median: 35.89%) over a period of 217 days (median: 122). So in terms of duration, the current decline is right in line with the average but it still has a way to go in terms of magnitude. In fact, to reach the average in terms of declines, the Nasdaq would need to fall to around 3,300. Obviously, there’s nothing that says the index has to drop that much, but if you think it’s bad now, imagine a drop to the long-term average.