Does the Stock Market Need to Make a Pullback?
Stock-Markets / Stock Markets 2018 Feb 28, 2018 - 04:35 AM GMTBy: Troy_Bombardia
I expected the S&P 500 to make a short term pullback before rallying higher in the medium term. Hence the current rally’s intensity does surprise me a little. But I’m unfazed because 95% of my capital is traded via the Medium-Long Term Model, which ignores the short term.
Here’s today’s study.
After the S&P has made a 10%+ “small correction”, how common is it for the S&P to rally without a pullback before making a new high?
Let’s take a look at the historical cases.
*We define these “pullbacks” as a 38.2% retracement of the rally.
2012
The S&P made a 10.9% “small correction”. It made a lot of 38.2% retracement pullbacks before making a new high.
2007
The S&P made an 11.9% “small correction”. It made 2 pullbacks before making a new high.
1999 and 2000
The S&P made a 13.1% “small correction” (1999) and 10.3% “small correction” (2000). The 1999 post-correction rally did not make a pullback before new highs.
1996 and 1997
The S&P made an 11% “small correction” in 1996 and a 10.2% “small correction” in 1997.
The 1996 case did see a pullback before new-highs. The 1997 case did not see a pullback before new-highs.
1990
The S&P made an 11.3% “small correction”. It made 2 pullbacks before making a new high.
1986
The S&P made a 10.2% “small correction”. It made a pullback before making a new high.
1967-1968
The S&P made an 11.7% “small correction”. It did not make a pullback before making new highs.
1965
The S&P made a 10.9% “small correction”. It made a pullback before making new highs.
1955
The S&P made a 10.5% “small correction”. The S&P made a 38.2% retracement pullback before making new highs.
1950
The S&P made a 14% “small correction”. It made a 38.2% retracement pullback before making new highs.
Conclusion
Making a 38.2% retracement pullback is likely from a statistical point of view, but it is not necessary. Hence, the U.S. stock market does not need to make a pullback right now before making new all-time highs. Pullbacks aren’t required.
The S&P 500 has already retraced more than 61.8% of the correction. Historically, pullbacks tend to occur before the S&P retraces 61.8%. This means that the odds of a pullback are now <50%.
Focus on the stock market’s medium-long term outlook, which is still decisively bullish.
By Troy Bombardia
I’m Troy Bombardia, the author behind BullMarkets.co. I used to run a hedge fund, but closed it due to a major health scare. I am now enjoying life and simply investing/trading my own account. I focus on long term performance and ignore short term performance.
Copyright 2018 © Troy Bombardia - All Rights Reserved
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