This morning, I noticed a commentary piece that identified we’ve got had 12 document highs for the S&P 500 prior to now month. A document is normally a giant deal, and I usually get calls to touch upon what all of it means. However I’ve to confess, I didn’t understand there had been that many prior to now month. So, what does this sequence of highs imply, if something?
Not Magic, Simply Math
Consistent with my standard coverage of being the onion within the fruit salad, I don’t suppose it means all that a lot. If you concentrate on it, each time we hit a brand new excessive, each single excessive after that can be a brand new excessive. And, if the market retains transferring greater over a month or extra, which means we get lots of new highs. Nothing magic, simply math—and customary sense.
historical past bears this concept out. When the market hits new highs, it might go greater. Then once more, it might drop. Typically talking, a string of latest highs displays each optimism and powerful demand for shares, and that pattern is prone to proceed. However that pattern is normally the case, and it has nothing to do with a sequence of latest highs.
A Blow-Off High?
One other opposite meme that’s spreading is that the string of latest highs means the inventory market is now approaching a blow-off high, when it runs up after which collapses. I’ve just a little extra affinity for this one (it speaks to the onion in me). This idea can be in line with a few of the issues we’ve got seen not too long ago, such because the collapse of WeWork. However right here, too, the historic information merely doesn’t bear it out. We didn’t see comparable habits, for instance, earlier than both the 2000 or 2008 crashes. It makes an incredible story, however the information merely doesn’t assist it.
Trying on the “Details”
And that, I believe, is the actual message of this sequence of highs: we will view it as an incredible story, and use it as an instance no matter level we are attempting to make. However if you truly look onerous on the information? You discover nothing.
Most of the inventory market “details” comply with an analogous sample. One thing might have occurred as soon as, and endlessly after that “truth” will resonate. However we should think about whether or not there’s a actual motive beneath these so-called details. If not, it’s doubtless coincidence or, as on this case, basic math. The underlying trigger is just not all the time apparent, as with the seven-year market cycle. For those who look onerous sufficient, it is best to have the ability to discover it. If not, be very cautious how a lot you depend on that indicator. As all the time, nevertheless, it isn’t that easy. Some inventory market details do certainly appear to carry constantly, with no seen and even hidden trigger. If that’s the case, you may wish to depend on them (once more, be very cautious).
If the sort of factor was simple to determine, everybody can be doing it. With the string of latest data, it does appear to be simple—and possibly all people is doing it. Which might be attribute of a blow-off resulting in a market high.
Whoops. We have come full circle!
Editor’s Be aware: The unique model of this text appeared on the Impartial Market Observer.