This morning, I noticed a commentary piece that identified now we have had 12 document highs for the S&P 500 up 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 notice there had been that many up to now month. So, what does this collection of highs imply, if something?
Not Magic, Simply Math
According to my standard coverage of being the onion within the fruit salad, I don’t assume 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 also be a brand new excessive. And, if the market retains shifting larger over a month or extra, meaning we get quite a lot 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 larger. Then once more, it might drop. Usually talking, a string of latest highs displays each optimism and powerful demand for shares, and that pattern is more likely to proceed. However that pattern is normally the case, and it has nothing to do with a collection 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 principle can also be according to among the issues now we have 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 conduct, for instance, earlier than both the 2000 or 2008 crashes. It makes a fantastic story, however the information merely doesn’t assist it.
Wanting on the “Information”
And that, I feel, is the true message of this collection of highs: we will view it as a fantastic story, and use it as an instance no matter level we are attempting to make. However whenever you really look arduous on the information? You discover nothing.
Lots of the inventory market “details” comply with the same sample. One thing might have occurred as soon as, and ceaselessly after that “truth” will resonate. However we should take into account whether or not there’s a actual cause beneath these so-called details. If not, it’s seemingly coincidence or, as on this case, basic math. The underlying trigger shouldn’t be at all times apparent, as with the seven-year market cycle. If you happen to look arduous sufficient, it’s best to have the ability to discover it. If not, be very cautious how a lot you depend on that indicator. As at all times, nevertheless, it isn’t that easy. Some inventory market details do certainly appear to carry persistently, with out a seen and even hidden trigger. If that’s the case, you may need to depend on them (once more, be very cautious).
If this kind 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 Word: The unique model of this text appeared on the Unbiased Market Observer.
