New S&P 500 Highs Reduce Long-term Bear Market Risk to Zero

Yes, this is a pretty bold headline, but it’s not just a sensationalistic attention grabber, it’s simply the result of my research.

I published a similar article before in February 2016, when the S&P 500 traded below 1,900. The title then was: 2016 Bear Market Risk is Zero Based on this Rare but Consistent Pattern

In fact, a pattern similar to February 2016 played out in January of this year (discussed here: Is the ‘Bear Market’ Already Over?)

But the reason for this bullish long-term article is the new S&P 500 all-time high, not a breadth thrust from the low (as in February 2016 and January 2019). Here is why this is bullish:

Bullish ‘Round Trip’

Last week’s new S&P closing high completed a tumultuous round trip: A 20% drop sandwiched by two all-time highs in 146 days (see chart below).

Since 1928, something similar (at least a 14% drop sandwiched by all-time highs) has only happened 12 other times, 6 of those occurred since 1980 and are listed in the table below (the table includes the 2018 round trip, although it was only 10.16%).

‘Round Trip’ Implications

The stat is interesting, but does it mean anything? Yes, it does.

As the right column (table above) shows, 1 year after the S&P eclipsed its prior all-time high, it was higher every time, on average 12.66%.

The chart below shows the average performance for the year following the day when the S&P 500 fully recovered its prior losses (based on the data shown in table).

Based on the average trajectory, the first 80 trading days (about 4 month) after the all-time high tended to be choppy, but price action is outright bullish thereafter.

Odds of a deep but temporary S&P 500 pullback in the 3,000 range are high.

Price studies like this are just one of many indicators that go into the Profit Radar Report’s market forecasts. If you have only a few minutes every week to become the best-informed investor you know, you’ll enjoy the Profit Radar Report. Take a test drive now.

Simon Maierhofer is the founder of iSPYETF and the publisher of the Profit Radar Report. Barron’s rated iSPYETF as a “trader with a good track record” (click here for Barron’s evaluation of the Profit Radar Report). The Profit Radar Report presents complex market analysis (S&P 500, Dow Jones, gold, silver, euro and bonds) in an easy format. Technical analysis, sentiment indicators, seasonal patterns and common sense are all wrapped up into two or more easy-to-read weekly updates. All Profit Radar Report recommendations resulted in a 59.51% net gain in 2013, 17.59% in 2014, 24.52% in 2015, 52.26% in 2016, and 23.39% in 2017.