The Trend is Your Friend…

Some people say, “the trend is your friend…until it bends” (assuming this one ever does bend!)….Along those lines, here’s some interesting data via InvesTech Research:

“Although the S&P 500 moved upward in 10 of the past 11 weeks, this doesn’t necessarily mean the market will decline in the coming months. In fact, historical evidence points toward further gains ahead. Over the past 85 years, there have been only 23 instances when the S&P 500 has had a similar winning streak. While it is unusual for the market to be up in 10 of 11 weeks, it is not necessarily a sign of imminent trouble ahead.
• The S&P 500 moved sideways roughly half the time during the first month following. By the end of 3 months, there was a median gain of 4.9%, with only 2 periods that saw more than a 4% decline.
• Six and 12 months later, median gains picked up to 7.0% and 12.6%, respectively. There were only 2 instances when the market was down more than 5% (1957 and 1989) and both occurred when there was significant tightening of Federal Reserve policy during the preceding 18 to 24 months.
• Only once, in 1957, have we seen this type of market action in the midst of a bear market.
• Additionally, each of the instances occurred during periods of economic growth – except for 1961, when the economy was climbing out of the tail end of a recession.”

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Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.

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  • Nico

    would you really trade using such statistics?

    it seems that you would publish anything to support your view.

    how about suggestion caution to US retail investors at those levels?

  • Alberto

    Statistics is not an hobby but a science. The problem is that mainstream money managers has a poor math understanding or worst. First of all, before computing a set of statistics we have to undersatnd what kind of system we’re dealing with. For example, is a stationary system, is ergodic, samples do follow a gaussian like distribution or at least a symmetrical distribution or they follow a power law statistics etc… Under well delimited circumstances some statistics are usefull otherwise they are totally misleading.

  • http://pragcap Michael Schofield

    The trend is your friend. The trend is your friend. The trend is your friend… Can’t be repeated too many times.

  • Boston Larry

    Enjoy this bull ride while you can. Who knows how long the ride will last. What is the historical percent of 4 year old bull markets that have survived until their 5th anniversary without a correction of at least 10% ?

  • perpetual neophyte

    Larry – your question is a bit muddled the way I read it. Are you saying there has not been an equity index correction of at least 10% during the current 4-year bull market?

  • CharlesD

    Major stock market peaks are erratic affairs. Up, down, up, etc.
    When the market moves up “persistently” it does not necessarily
    mean you will be going meaningfully higher. However, it does tell
    you that a “major peak” (15% plus decline) is not yet in place.
    Hence, you are still safe in equities “for now”. After the first selloff of say 3% or more and then a return to new highs, this
    “guarantee” will no longer be in place. That’s the only message of
    this stat.

  • Boston Larry

    The majority of 4 year bull markets have not even survived at all until their 5th anniversary. Most have given way to a bear market. The average duration of bull markets is about 3 and a half years. The current bull market since March, 2009 is long in the tooth. Be on the lookout for a trend change!