The market has advanced 16 of the last 18 weeks, and its current advance now totals 23.8% from the late October lows through 2/29. In October we wrote “several key market indicators are suggesting a potential reversal higher in the near future and a positive 4th quarter”. However, we did not expect an advance of this magnitude. In fact, the market has not advanced 16 of 18 weeks since 1971 according to Bespoke. A 20%+ advance in 4 months is historically rare as well, occurring just 8 times since 1957.
It may be tempting to think that large advances must be followed by large declines. But history tells a different story. In the 8 prior instances where the market advanced 20%+ in 4 months, the market was positive over the next 6, 9, and 12 months every time. The median return over the ensuing 12 months was 18.48% according to data from Dwyer Strategy.
We’ve written that the market has shown signs of a potential pullback; there have been ample indications that this was likely. Yet, it simply has not happened. When the market doesn’t sell off when it “should”, it signals that the advance is very strong and durable. Of course, eventually the market will have more of a pullback, and our process will continue to monitor risks as they emerge and evolve. But the action over the last few months tells us the market is likely to continue higher over the next year.
