Author: Kenley Scott

Key Points:

• Rare S&P 500 feat achieved to end last week. +15% gain over 8 weeks has only occurred in 33 prior weeks, or about 1% of all weeks since 1970.
• Like the Russell 2000 >20% over seven weeks (see prior week commentary), forward returns are very strong in past instances.

• Most instances were bunched together in eight periods, Q2 2020, Q1 2009, Q4 1998, Q2 1997, Q1 1991, Q1 1987, Q4 1982, and Q1 1975.
  • Of these eight, only Q1 1987 had poor forward returns.
• Individual cases included Q4 2002, Q4 2001, Q2 1980, Q1, 1976.
  • Of these Q4 2001 and Q1 1976 had poor forward returns.
• Also last week, the S&P 500 closed 6% and 9% above 10/40-WMAs. This has occurred 65 prior times, or about 2% of all weeks.
  • Forward returns are more mixed here, but overall still fairly strong.
  • No surprise, but if the first four are positive, then the forward 26/52-week average is higher. If the first four are negative, the 26/52-week returns are lower.

Key Points:

• Large-cap indices have clearly risen into 52-week highs, with the Dow at all-time highs. Small/midcaps are testing key resistance from prior peaks over the past 15 months.
• Breadth (stocks above 30-WMA) has risen from below 20% to nearly 75% in seven weeks. Peak in breadth tends to come between 75–85%, with exceptional cases ~90%.
• Russell 2000 joining in has been the largest factor in rising breadth. Looking at the Russell, it has risen ~20% in seven weeks.
  • Since 1987, a 20% rise over the trailing five-week (35 trailing days) period is rare, occurring less than 1% of the time. Also, many of the instances were bunched together (mostly in 1991, 2009, and 2020).
  • When this occurs, forward returns have been exceptional.

Key Points:

• Another strong week of breakouts last week, following a large spike two weeks ago.
• Looking back at the past 23+ years, when a spike in breakouts occur, it tends to fit in three categories:

1.    Market uptrend beginning or ongoing.

a.    Key here is solid 4-8 week forward gains and additional breakout spikes soon thereafter. Ex: November 2016.

2.    Headfake occurring.

a.    Most likely breakdown evident within a few weeks. Ex: May 2001.

3.    End to longer rally occurring.

a.    Longer topping process, but within 3 months should be evident. Ex: November 2021.

Key Points:

• Revisiting FTD study.
• On the S&P 500, there have been 34 corrections of at least 9% and to below the 200-DMA since 1970. Of these:
  • Scenario One – Eighteen had a first FTD, which resulted in the continuation of the bull market and eventual new highs.

Key Points:

• Rally of the past two weeks has led to a net gain for indices as well as the median stock post-Q3 earnings report.
  • Unlike the setup of Q1 and Q2, the market sold off into earnings this quarter. Despite starting with losses in the first couple of weeks of reporting, the S&P 500 is now up a net of 2% since earnings began.
  • The median S&P 500 stock is also up about 2% since reporting earnings.
• In terms of Q3 results, those with both the biggest beats and biggest positive reactions include Capital Equipment, Consumer Cyclical, and Technology. Energy and Transportation have had the only negative reactions.