Past Is Prologue: Net 20-Day Highs Indicate Attractive Forward 6-Month Returns

William Shakespeare famously quipped “Past Is Prologue.” Success in most endeavors, including the markets, requires an understanding of historical antecedents and learning from the implications for the future.?Many intone negatively, “Those who fail to learn from history are destined to repeat it.”?We prefer the more optimistic viewpoint that history, through statistical data, may offer opportunity as well as help to avoid disaster.

Regular readers of our research content know that we respect momentum surges as meaningful indicators of future strength.?When net 20-day highs (20-day highs minus 20-day lows) for the S&P 500 Index have exceeded 50% in the past, significant forward 6-month market rallies have a greater propensity to occur. Such a reading occurred on Friday, December 1, 2023, and again on Monday, December 4, 2023!

The below chart communicates an important statistical representation of why we want to see net 20-day new highs greater than 50%.?When we observe this data, the forward 6-month return for the S&P 500 Index averages 7%.?Furthermore, of the 84 occurrences since 1950, 79% of these observations provided a positive outcome.

Will the first half of 2024 follow the odds??Stay tuned.

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