This morning, I noticed a commentary piece that identified we’ve got had 12 file highs for the S&P 500 previously month. A file is often a giant deal, and I typically get calls to touch upon what all of it means. However I’ve to confess, I didn’t understand there had been that many previously month. So, what does this sequence of highs imply, if something?

Not Magic, Simply Math

Consistent with my ordinary coverage of being the onion within the fruit salad, I don’t suppose it means all that a lot. If you concentrate on it, each time we hit a brand new excessive, each single excessive after that can also be a brand new excessive. And, if the market retains transferring larger over a month or extra, which means we get a number of new highs. Nothing magic, simply math—and customary sense.

historical past bears this concept out. When the market hits new highs, it might go larger. Then once more, it might drop. Typically talking, a string of latest highs displays each optimism and powerful demand for shares, and that development is more likely to proceed. However that development is often the case, and it has nothing to do with a sequence of latest highs.

A Blow-Off High?

One other opposite meme that’s spreading is that the string of latest highs means the inventory market is now approaching a blow-off high, when it runs up after which collapses. I’ve a bit of extra affinity for this one (it speaks to the onion in me). This concept can also be per a few of the issues we’ve got seen not too long ago, such because the collapse of WeWork. However right here, too, the historic information merely doesn’t bear it out. We didn’t see related habits, for instance, earlier than both the 2000 or 2008 crashes. It makes an awesome story, however the information merely doesn’t help it.

Trying on the “Info”

And that, I feel, is the actual message of this sequence of highs: we are able to view it as an awesome story, and use it as an example no matter level we try to make. However while you really look laborious on the information? You discover nothing.

Lots of the inventory market “info” observe an analogous sample. One thing could have occurred as soon as, and without end after that “reality” will resonate. However we should take into account whether or not there’s a actual motive beneath these so-called info. If not, it’s doubtless coincidence or, as on this case, simple arithmetic. The underlying trigger is just not at all times apparent, as with the seven-year market cycle. If you happen to look laborious sufficient, you must have the ability to discover it. If not, be very cautious how a lot you depend on that indicator. As at all times, nevertheless, it isn’t that easy. Some inventory market info do certainly appear to carry constantly, with no seen and even hidden trigger. In that case, you may need to depend on them (once more, be very cautious).

If this kind of factor was simple to determine, everybody can be doing it. With the string of latest data, it does appear to be simple—and perhaps everyone is doing it. Which might be attribute of a blow-off resulting in a market high.

Whoops. We have come full circle!

Editor’s Notice: The unique model of this text appeared on the Unbiased Market Observer.