Why This Chart Isn't a Screaming Buy Signal

The similarities between 2011 and 2015 are clear, but that doesn't guarantee stocks will take off again

by Adam Warner

Published on Dec 22, 2015 at 9:14 AM
Updated on Dec 22, 2015 at 9:15 AM

The financial Twitterverse was abuzz on Monday morning with a chart from Bespoke Investments showing a parallel between 2011 to 2015. Well, here's my rendition using 2015 dates as the S&P 500 Index (SPX) baseline:

151221agw1

And yes, it looks very similar. It was a bit better earlier in 2011, and the big drop happened modestly earlier in August. And then in 2015, we recovered quicker and (thus far) have avoided an echo, shallower dip. But nothing ever duplicates to a T, and this sure looks pretty close.

And that's all very encouraging if you like "rhyming" history -- and rallies. Here's how the chart looks when I extend it to the first quarter in 2012 (and switch to a 2011 baseline):

151221agw2

I hope we follow that path, but it's important to remember that this is a sample size of literally one. Not to mention that we're obviously in a very different place in the economy. If nothing else, we're a few days past the Most Important Rate Hike in the History of Mankind ... as opposed to halfway through a long-term easy money cycle. And that 2011-2015 parallel does not extend to our friend, the CBOE Volatility Index (VIX):

151221agw3

We're actually underperforming 2011 in VIX terms, though that's mostly thanks to not holding onto the post-August pop this year. A lot of that is, of course, because the market itself acted better in November 2015.

Throw it all together and -- who knows? I do think lots of our crises in 2015 are wildly overblown. But again, it's one example of one year that acted like this year. Not sure I'm ready to back up the truck on that.

Disclaimer: Mr. Warner's opinions expressed above do not necessarily represent the views of Schaeffer's Investment Research.


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