Study: record number of "close higher" in a month


The S&P 500 has made new all-time highs (daily CLOSE $) 14 times in January 2018. And January isn’t even over. This is a record number of “close highers” in any month since 1954.
Some investors and traders see this as a sign of “euphoria”, which should be bearish for the U.S. stock market. Is it bearish?
Let’s look at the historical cases in which:

  1. The S&P closed higher than the previous day’s close for at least 14 of the past 21 trading days (rolling 1 month), and…
  2. Each of those 14+ days was a new all-time high.

Here are the historical cases.

  1. February 27, 1998 (only other historical case in which there were 14 “close highers” in the past 21 trading days).

This is a case of 1. The S&P began a 22% “significant correction” 5 months later in July 1998.

Let’s expand the data. Let’s see what happens when:

  1. The S&P closed higher than the previous day’s close for at least 13 of the past 21 trading days (rolling 1 month), and…
  2. Each of those 13+ days was a new all-time high.

Here are the historical cases.

  1. January 25, 2018
  2. October 5, 2017
  3. November 26, 2014
  4. May 21, 2013
  5. February 26, 1998
  6. April 7, 1995
  7. February 13, 1985
  8. December 11, 1972
  9. May 6, 1965
  10. March 18, 1964
  11. November 27, 1961
  12. July 1, 1955
  13. May 26, 1954

October 5, 2017

The S&P 500 has yet to make a 6%+ “small correction”.

November 26, 2014

The S&P began a 15.2% “significant correction” 6 months later in May 2015.

May 21, 2013

The S&P began a 7.5% “small correction” the very next day (May 22).

February 26, 1998

The S&P began a 22.4% “significant correction” 5 months later in July.

April 7, 1995

The S&P began a 6% “small correction” 10 months later in February 1996.

February 13, 1985

The S&P began an 8.4% “small correction” 5 months later in July.

December 11, 1972

The S&P began a bear market 1 month later in January 1973. This historical case doesn’t apply to today because the Medium-Long Term Model does not foresee a bear market on the horizon right now.

May 6, 1965

The S&P began a 10.9% “small correction” 1 week later.

March 18, 1964

The S&P did not make a “small correction” until more than 1 year later in May 1965.

November 27, 1961

The S&P began a 29.3% “significant correction” half a month later in December 1961.

July 1, 1955

The S&P began a 10.5% “small correction” 2.5 months later in September.

May 26, 1954

The S&P 500 6.8% “small correction” more than 9 months later in March 1955.

Conclusion

The results from this study are all over the place. Sometimes a correction was imminent. Sometimes the next correction was more than 1 year away.
Hence, a record number of “close highers” isn’t a bearish sign for the U.S. stock market. It’s neither bullish nor bearish. Ignore this indicator.

2 comments add yours

  1. Troy, can u please explain why u went into cash during the French election with macron last year but why u are hesitant to do so on the potential correction?

    • During any major political event, there’s a chance that $SPX will tank. Happened during Brexit and Trump. But you know that any sell off will be short lived. If the event doesn’t turn out to be a problem, you can always buy it back the next day.
      With the upcoming small correction: you might have to wait months before you buy back UPRO. In the meantime, SPX can surge. Any surge post-event will be limited

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