S&P Record High Retest Could Signal Low Volatility

Long-term returns for stocks after such moments tend to be bullish

Senior Quantitative Analyst
Apr 24, 2019 at 6:30 AM
facebook twitter linkedin


Stocks have been on a tear since bottoming last Christmas Eve. The all-time high on the S&P 500 Index (SPX) now looms just overhead. A lot of market technicians see that as potential resistance. In other words, they believe there’s an increased chance of a pullback or at the very least a pause in the rally. This week I’m looking at prior instances of the S&P 500 testing all-time highs to see if the data supports their suspicions.

sp 500 all time high 1

Methodology & Signals

To test this, I looked at the S&P 500 since the Great Depression. I considered times the index pulled back at least 20% from its previous all-time high. Then I considered it a signal when it gets back to the arbitrary level of within 1% of the high. The table below shows each of the signals -- the most recent one occurring just yesterday.

Typically, it seems to take a week or less for the all-time high to actually get breached. The last two times, however, it took considerably longer, as the index struggled when getting within striking distance of the previous high.

spx ath data 2

The Numbers for S&P Record Highs

The table below summarizes how the S&P 500 Index performs after each of those signals listed above. The returns over the next month are in line with typical market returns -- perhaps some slight underperformance. The longer term returns after these signals, however, look better than the anytime returns. 

Three months and beyond after a signal, the index was higher after 10 of the 11 signals. Average returns are also higher after signals. Volatility, after these signals, is noticeably lower than usual. Based on the study, I don’t think there’s much to worry about as far as the S&P 500 running up toward its previous all-time high.

sp near high last

 

Minimize Risk While Maximizing Profits

There is no options strategy like this one, which consistently minimizes risk while maintaining maximum profits. Perfect for traders looking for ways to control risk, reduce losses, and increase the likelihood of success when trading calls and puts. The Schaeffer’s team has over 41 years of options trading success targeting +100% gains on every trade. Rest assured your losses are effectively limited to your initial cost at the time of making your move! Don't waste another second... join us right now before the next trade is released! 

 


 


 
Special Offers from Schaeffer's Trading Partners