6-Positive Market Months. What Happens Next?

Market Months, Technically Speaking: 6-Positive Market Months. What Happens Next?

In this past weekend’s newsletter, I discussed the rarity of 6-positive market months in a row. To wit:

“An additional ‘red flag’ is the S&P 500 has had positive returns for 6-straight months. As shown in the 10-year monthly chart below, such streaks are a rarity, and when they do occur, they are usually met by a month, or more, of negative returns.

(It is also worth noting that when the 12-Month RSI is this overbought, larger corrective processes have occurred.)

As stated, I only went back 10-years in the chart above. Such generated several email questions asking about the number of historical occurrences over the long term.

6-Positive Market Months – Long Term

Using Dr. Robert Shiller’s long-term nominal stock market data, I calculated monthly positive returns and then highlighted periods of 6-positive market months or more.

Market Months, Technically Speaking: 6-Positive Market Months. What Happens Next?

There are several important takeaways from the chart above.

  1. All periods of consecutive performance eventually end. (While such seems obvious, it is something investors tend to forget about during long bullish stretches.)
  2. Given the extremely long period of market history, such long-stretches of bullish performance are somewhat rare.
  3. Such periods of performance often, but not always, precede fairly decent market corrections or bear markets.

The table below shows all periods where there were 2-months or more of consecutive positive returns.

Market Months, Technically Speaking: 6-Positive Market Months. What Happens Next?

What the table shows is that nearly 40% of the time, a two-month stretch of positive performance is followed by at least one month of negative performance. Three consecutive positive months occur 23% of the time, and only 14% of occurrences stretch to 4-months.

Since 1871, there have only been 12-occurrences of 6-month or greater stretches of positive returns before a negative month appeared. In total there are just 40 occurrences, out of 245 periods of 2-months or more, the market ran 6-months or longer without a correction.

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