Technically Speaking: You Carry An Umbrella In Case It Rains

Currently, as Brett notes, the current rally has all of the “earmarks” of a “bull rally in a bear market.”

“Yes, certainly, the biggest “up” days on the market have historically accounted for a big chunk of long-term returns.

‘One of the most common rhetorical bulwarks in the defense of buy and hold investing is to demonstrate the effects of missing the best 10 days in the market, and how that would affect the compounded return to investors. This is perhaps one of the most misleading statistics in our profession.’ – Meb Faber , Cambria Investments

The reasons? Most of the biggest ‘up’ days took place during bear markets, when the smart move was to be on the sidelines, he says. Oh, and missing the worst days was just as good for your wealth as catching the best ones, he found. From 1928 through 2010, he calculated, the 1% best days gained you, on average, 4.9% each. What about the worst 1% of days? They cost you about 4.9% each.'”

While we looked at daily, weekly, and monthly indications, taking a look at “quarterly” data can give us clues as to the “real risk” investors are taking on at any given time. Is this the beginning of a major bull market cycle? Or, are we nearing the end of one? How you answer that question, given the relatively short time frame of the majority of investors (hint – you don’t have 100-years to reach your goals), can have an important impact on your outcome.

As I wrote in “Investors Are Dealt A Losing Hand:”

“The problem for investors is that since fundamentals take an exceedingly long time to play out, as prices become detached “reality,” it becomes believed that somehow “this time is different.” 

Unfortunately, it never is.

The chart of the S&P 500 is derived from Dr. Robert Shiller’s inflation adjusted price data and is plotted on a QUARTERLY basis. From that quarterly data I have calculated:

  • The 12-period (3-year) Relative Strength Index (RSI),
  • Bollinger Bands (2 and 3 standard deviations of the 3-year average),
  • CAPE Ratio, and;
  • The percentage deviation above and below the 3-year moving average.
  • The vertical RED lines denote points where all measures have aligned”


Even after the recent correction, long-term extensions and deviations remain at historically high levels which, historically speaking, have not been extremely kind to investors. But valuations, despite the recent correction, as still pushing 30x earnings as well. As Brett noted:

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