I am republishing this post as it is still directly applicable to the current market scenario. $SPY is very near to making significant new highs…
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On Thursday, March 15th, the S&P 500 made a new 900 day high. With the S&P 500 re-visiting prices it hasn’t seen in almost 5 years, I thought it would be interesting to look at what happens after the index makes significant new highs.
The Rules:
Buy SPY at the close if
- SPY closes at a new X day high
Sell SPY at the close Y days later.
No commissions or slippage included. All SPY history used.
The Results:
Thoughts and Caveats:
Because the market was making significant new highs in October of 2007, the results show the impact of the bear market, starting around day 65. As the trades are being held for 100 days, any trade initiated in October 2007 was held through the beginning of 2008. Ouch.
On the brighter side, a new high of 50 days or greater has seen a surge during the last 25 days of the holding period. This surge appears to be the relatively normal result of buying during a bull market.
It should be noted that a new 900 day high generated the highest return.
Sample size grew as the X day new high number decreased.
The Buy-n-Hold return was calculated by chopping SPY performance into 100 day segments and then averaging those segments.
The bottom line is that save for a new Armageddon a la 2008, the market has tended to keep climbing after making a significant new high.
Excellent post…. I am firm believer that stock (or index) making new highs will continue to do so (of course I also use stops to control risk). Systems that I use are based on it, and I use it successfully. Your great post just confirm my belief. Thanks a lot Woodshedder
Hey wood,
I did some quick analysis tonight checking what happens when $VIX closes below $15 for the first time in three months. Apparently, this has only happened six times since 1990. However, each instance saw at least a -2% drop in $SPX in the proceeding two months.
I am neither a programmer nor a statistician so I yield to you: is this in fact a proper analysis and if so, is the sample size too small to give much credence?
John, the sample size is probably too small, but it might be fun to look at anyway. I’ll give it a look this evening.