≈ What Goes Up Must Come Down? ≈
Does it make you nervous when you see headlines about how stocks are at all-time highs? Do you conflate “high” with “risky” and “low” with “safe?” If so, knock it off. It isn’t true. At least not in the short run.
Quite the contrary, the stock market has generated much better 3-month forward returns after 20% of stocks in the S&P 500 make new 52-week highs. You can find all the beaming details in today’s chart below. For those that aren’t math geeks, let me break it down for you.
The grey area chart shows the normal distribution of 3-month returns for the S&P 500. The mean, or average, is 2.86%. In contrast, the red area chart shows the distribution of the S&P 500 after 20% of the stocks in the Index registered new 52-week highs. Notice how it is shifted considerably to the right. The mean is 4.25%.
The takeaway is simple. New highs should be loved, not loathed. If your time horizon for trading is a few months, buying when the market is at a 52-week high generates better returns, on average.
Chart of the Day
Red, give me red!
The average 3-month returns of the stock market are way better after 20% of the Index notches new 52-week highs.
Video of the day
Join Coach Tyler, Frank and Mark for another edition of Trade Masters
Traders Lounge 11 AM EST
Join the coaches in this live lounge, ask questions, discuss ideas or just sit back and listen to veteran traders discuss market conditions.
Halftime Report 12:30 PM EST
The Halftime Report starts at 12:30 EST and covers what news is driving the market, chart analysis from the movers and shakers of the day and fun in a way that only Matt and Tim can deliver.
Cash Flow Club 8:30 PM EST
Join Gino Poore as he hosts the weekly cash flow blub
Financial freedom is a journey
Sign up now and gain unfettered access to all of the quality content and powerful Scouting Reports that our Pro Members enjoy for 15-days absolutely free with no strings attached and let us show you what your trading has been missing.
Tackle Trading LLC (“Tackle Trading”) is providing this website and any related materials, including newsletters, blog posts, videos, social media postings and any other communications (collectively, the “Materials”) on an “as-is” basis. This means that although Tackle Trading strives to make the information accurate, thorough and current, neither Tackle Trading nor the author(s) of the Materials or the moderators guarantee or warrant the Materials or accept liability for any damage, loss or expense arising from the use of the Materials, whether based in tort, contract, or otherwise. Tackle Trading is providing the Materials for educational purposes only. We are not providing legal, accounting, or financial advisory services, and this is not a solicitation or recommendation to buy or sell any stocks, options, or other financial instruments or investments. Examples that address specific assets, stocks, options or other financial instrument transactions are for illustrative purposes only and are not intended to represent specific trades or transactions that we have conducted. In fact, for the purpose of illustration, we may use examples that are different from or contrary to transactions we have conducted or positions we hold. Furthermore, this website and any information or training herein are not intended as a solicitation for any future relationship, business or otherwise, between the users and the moderators. No express or implied warranties are being made with respect to these services and products. By using the Materials, each user agrees to indemnify and hold Tackle Trading harmless from all losses, expenses and costs, including reasonable attorneys’ fees, arising out of or resulting from user’s use of the Materials. In no event shall Tackle Trading or the author(s) or moderators be liable for any direct, special, consequential or incidental damages arising out of or related to the Materials. If this limitation on damages is not enforceable in some states, the total amount of Tackle Trading’s liability to the user or others shall not exceed the amount paid by the user for such Materials.
All investing and trading in the securities market involves a high degree of risk. Any decisions to place trades in the financial markets, including trading in stocks, options or other financial instruments, is a personal decision that should only be made after conducting thorough independent research, including a personal risk and financial assessment, and prior consultation with the user’s investment, legal, tax and accounting advisers, to determine whether such trading or investment is appropriate for that user.