This morning, I noticed a commentary piece that identified now we have had 12 report highs for the S&P 500 prior to now month. A report is normally 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 prior to now month. So, what does this collection of highs imply, if something?

Not Magic, Simply Math

According to my normal coverage of being the onion within the fruit salad, I don’t assume it means all that a lot. If you consider 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 shifting increased over a month or extra, which means we get plenty of new highs. Nothing magic, simply math—and customary sense.

Taking a look at historical past bears this concept out. When the market hits new highs, it might go increased. Then once more, it might drop. Usually talking, a string of latest highs displays each optimism and robust demand for shares, and that pattern is more likely to proceed. However that pattern is normally the case, and it has nothing to do with a collection 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 little bit extra affinity for this one (it speaks to the onion in me). This principle can also be in line with a number of the issues now we have seen lately, such because the collapse of WeWork. However right here, too, the historic information merely doesn’t bear it out. We didn’t see comparable conduct, for instance, earlier than both the 2000 or 2008 crashes. It makes a terrific story, however the information merely doesn’t assist it.

Wanting on the “Details”

And that, I feel, is the actual message of this collection of highs: we are able to view it as a terrific story, and use it for example no matter level we are attempting to make. However if you really look exhausting on the information? You discover nothing.

Lots of the inventory market “information” observe the same sample. One thing could have occurred as soon as, and without end after that “truth” will resonate. However we should think about whether or not there’s a actual motive beneath these so-called information. If not, it’s possible coincidence or, as on this case, basic math. The underlying trigger isn’t at all times apparent, as with the seven-year market cycle. If you happen to look exhausting sufficient, you need to have the ability to discover it. If not, be very cautious how a lot you depend on that indicator. As at all times, nonetheless, it isn’t that easy. Some inventory market information do certainly appear to carry constantly, with no seen and even hidden trigger. If that’s the case, you may need to depend on them (once more, be very cautious).

If one of these factor was straightforward to determine, everybody could be doing it. With the string of latest information, it does appear to be straightforward—and possibly all people 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 authentic model of this text appeared on the Unbiased Market Observer.