Weekly Price Persistency
If the S&P 500 closes on Friday where it
closed on Thursday, then it will have lost about -0.8% for the week.
Remarkably, that would be its worst week in more than three months.
Since mid-December, the S&P has only
suffered two negative weeks, both smaller than -0.7%. The last
five weeks have all been positive.
Let's go back to 1928 and look for any
other time the index suffered its first down week after at least 5 up
weeks, and with no weekly losses greater than -1% during the past three
Like we saw with the Bollinger Bands, this
kind of price persistency is a consistently positive intermediate- to
long-term sign. The "sweet spot" for this one was six months
later, as the S&P was positive 12 out of 13 times, with an average
return that was more than double a random six-month return.
The lone loss, in 1966, was a bad one.
By the time the S&P hit this kind of streak, it was ready to top out and
the index immediately fell into a nine-month spiral.
Even including that failure, the S&P's
maximum loss at its worst point during the next six months averaged only
-2.0%, less than half a random six-month stretch. Only 1 out of
the 13 lost more than -4% during its worst point.
The maximum gain during the next half-year
averaged +10.7%, which is only a bit better than random, but still it's
5 times better than the average loss. Notably, 12 out of the 13
gained more than +5% at some point.