The hallmark of this bull market has been rotation and for this rally to continue further that is what I expect will be the case. I tracked new highs from V-shaped reversals from late 2012 to this most recent pull-back and based on the average returns and length of the rally, the market has more upside to come. In the five trading days after making new highs on August 21st SPX was able to post a 0.20% gain.
Below is a table that displays the percentage gains five trading days after new highs and then five more trading days after that. Notice that the larger the gains five days later, the larger the gain becomes 10 days later, with only one being negative. However, the more modest returns led to a smaller gain after five more trading days. In this current V-shape rally to new highs, the gain being rather meager suggests next week will likely posts gains of less than 1%.
Having said that, there is a caveat (isn’t there always). In the chart at the top I highlighted all of the 10-day periods after new highs from a V-shaped reversal. The circled one is the one outlier where the five day period of a negative return (-0.06) did lead to a gain of 1% five trading days later. Beneath the chart is the MACD and the number of stocks trading above their 50-day moving average. Notice that same outlier also resembles this current situation in terms of those two indicators.
Regardless of if SPX were to make a less than 1% gain next week or rally over 1%, in order for that to take place we would likely see a continuation of money flowing from one sector to another. Short of that and this rally may be setting up for a small breather. I like energy, oil and gas, healthcare, and gold miners next week.
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More For the Bulls to Cheer
The hallmark of this bull market has been rotation and for this rally to continue further that is what I expect will be the case. I tracked new highs from V-shaped reversals from late 2012 to this most recent pull-back and based on the average returns and length of the rally, the market has more upside to come. In the five trading days after making new highs on August 21st SPX was able to post a 0.20% gain.
Below is a table that displays the percentage gains five trading days after new highs and then five more trading days after that. Notice that the larger the gains five days later, the larger the gain becomes 10 days later, with only one being negative. However, the more modest returns led to a smaller gain after five more trading days. In this current V-shape rally to new highs, the gain being rather meager suggests next week will likely posts gains of less than 1%.
Having said that, there is a caveat (isn’t there always). In the chart at the top I highlighted all of the 10-day periods after new highs from a V-shaped reversal. The circled one is the one outlier where the five day period of a negative return (-0.06) did lead to a gain of 1% five trading days later. Beneath the chart is the MACD and the number of stocks trading above their 50-day moving average. Notice that same outlier also resembles this current situation in terms of those two indicators.
Regardless of if SPX were to make a less than 1% gain next week or rally over 1%, in order for that to take place we would likely see a continuation of money flowing from one sector to another. Short of that and this rally may be setting up for a small breather. I like energy, oil and gas, healthcare, and gold miners next week.
Check out a subscription for trade ideas and more.
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