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Definition

A significant and sudden fall in the total market. In general, anything less than a 20% fall in the market as a whole is regarded as a correction and anything above that is called a bear trend. A crash is different because it is generally much faster than a bear trend. Occasionally, a bear trend begins with a one day crash. This happened in 1929 when the market fell 9% on what became known as "black Monday" and then in 1987 Wall Street fell by 23% on Tuesday 20th October. But most bear trends are far more gradual than that. For example, in the 1998 dot com crash the JSE Overall index peaked on 20th April 1998 and then drifted down for four months before collapsing towards the end of August 1998. Usually a crash occurs after the market has been pushed up to excessively high levels by investor enthusiasm. You can tell when a market is very high because the price:earnings multiple (P:E) rises to very high levels. Share prices lose touch with the profitability of the companies which they represent. You will also usually see a surge of new listings and existing companies raising capital by issuing more shares. Such markets cannot be sustained and some sort of downward trend is imminent.

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