ANNANDALE. Va. (MarketWatch) - Parallels to 1987?

The Dow Jones Industrial Average DJIA, -0.47% dropped 504 points on Monday, reacting to the bankruptcy of Lehman Brothers Holdings LEH, , Inc, the shotgun marriage of Merrill Lynch & Co., Inc. MER, +27.69% to Bank of America Corporation BAC, -1.32% , and the rumored imminent collapse of American International Group, Inc. AIG, -1.23% .

That point drop is almost exactly the same as the Dow's loss on October 19, 1987, the day of the 1987 stock market crash. That crash, which was the worst in stock market history, became known as Black Monday; the Dow dropped 508 points on that day.

Of course, a 508-point drop in October 1987 amounted to a 22.6% loss, or five times the magnitude of Monday's 4.4% loss. But investors more often than not react emotionally rather than rationally; and if they focus instead on the point drop, then Monday's plunge might take on some of the psychological significance of the 1987 Crash.

So it will be interesting to see how many commentators make a big deal about a parallel to 1987.

If they do, then contrarians will consider it to be a good sign. Contrarians, of course, turn bullish when everyone else is throwing in the towel, and it would be strong evidence of capitulation if commentators were to consider Monday to be one of the worst days in history.

If commentators instead choose to pooh-pooh Monday's drop, then contrarians are likely to conclude that there is not yet enough capitulation.

Which will it be?

I'm afraid that it doesn't look good: The average short-term market timer has yet to completely throw in the towel.

Consider the Hulbert Stock Newsletter Sentiment Index (HSNSI), which reflects the average recommended stock market exposure among a subset of short-term stock market timing newsletters.

As of Monday evening, for example, the HSNSI stood at minus 33.2%. Though that suggests that the average short-term timer is bearish, he is not nearly as bearish as on past occasions of capitulation. The all-time low for the HSNSI, for example, is minus 81.8%--or nearly 50 percentage points lower.

Shorter-term comparisons reach the same conclusion. For example, the HSNSI closed Monday night higher than where it stood prior to the July stock market low. Then, this sentiment barometer got as low as minus 42.9%.

What this means: Even though the July lows were convincingly taken out by Monday's plunge, the average short-term market timer is more bullish today than then - by nearly ten percentage points.

That's not a good sign, from a contrarian point of view. If Monday's low were to be the final low of the bear market that began a year ago, then contrarians would expect sentiment today to be a lot lower than where it stood in mid July.

To appreciate how sentiment typically behaves at a bear market low, consider what the HSNSI did during the successful retest of the stock market's low of Oct. 9, 2002, when the Dow closed at 7,286. The HSNSI on that day stood at 10%.

After an impressive rally off of that low, the market in the first months of 2003 set up a retest of that low, getting as close as 7,524 on March 11. The HSNSI on that day stood at minus 19.2% -- 29.2 percentage points lower than where this sentiment index had stood at the October 9 2002, low.

Clearly, there was a lot more pessimism in March 2003 than there was in October 2002. And, sure enough, the October 2002 low ended up holding, and the market rallied strongly.

It has been just the opposite this time around. As the market's rally off the July lows began to falter in August and early September, the typical market timer did not appear to be concerned. The consensus was that the July low would hold.

So contrarians are not surprised that those lows did not hold. (Read my September 3 column.)

If sentiment behaves according to the contrarian pattern, there will be a lot more pessimism when the bear market hits its final low.