Persistent Higher Highs Bullish in Short and Intermediate Term

Both the S&P and Nasdaq 100 chalked up their 10th consecutive higher highs today. It is natural and perhaps logical for one to think this market is overextended and that we should expect a pullback. But the markets do not often behave according to our 'logical' expectations. This may be good example. Indeed the market is overextended by various measures, however the data suggest that we should be cautious on the short side. There have been only 17 other instances where the S&P 500 has made 10 consecutive higher highs. In 14 cases (or 82.4% of the time) the market went on to post a higher close within 3 days. In the table below, i have also included the performance of the S&P 20 days later (column N20). Note that in 15 out of the 17 cases (or 88.2%) the market was trading higher, often comfortably so.

(Note: column '3Day+' displays the number of days it took the S&P to close higher within the next 3 days. a value of 0 indicates the market did not close lower within 3 days)

Ticker	Date/Time	Close	Streak	3Day+	%Chg N1	%Chg N2	%Chg N3	%Chg N20
SPX	9/15/1954	31.29	10.00	1.00	0.54	1.34	0.89	3.13
SPX	6/23/1955	40.75	10.00	1.00	0.52	0.59	0.05	5.52
SPX	7/8/1959	60.03	10.00	0.00	-0.10	-0.20	-1.03	0.45
SPX	6/9/1960	58.00	10.00	0.00	-0.05	-0.02	-0.16	-1.07
SPX	1/30/1961	61.97	10.00	3.00	-0.31	-0.11	0.53	2.37
SPX	8/1/1961	67.37	10.00	3.00	-0.64	-0.12	0.46	0.27
SPX	1/8/1964	76.00	10.00	1.00	0.37	0.32	0.29	0.99
SPX	1/18/1967	85.79	10.00	1.00	0.03	0.33	0.70	2.89
SPX	5/6/1969	104.86	10.00	2.00	-0.18	0.23	0.18	-2.16
SPX	12/4/1970	89.46	10.00	1.00	0.54	0.01	0.09	2.62
SPX	1/14/1976	97.13	10.00	3.00	-0.54	-0.13	1.23	3.75
SPX	4/13/1982	115.99	10.00	2.00	-0.14	0.31	0.71	2.96
SPX	5/14/1990	354.75	10.00	0.00	-0.13	-0.21	-0.08	3.24
SPX	9/13/1995	578.77	10.00	1.00	0.84	0.79	0.69	0.12
SPX	2/6/1996	646.33	10.00	1.00	0.56	1.51	1.55	0.88
SPX	3/2/1998	1,047.70	10.00	1.00	0.41	-0.04	-1.21	4.38
SPX	3/19/1998	1,089.74	10.00	1.00	0.86	0.53	1.46	3.03
SPX	9/17/2009	1,065.49	10.00	0.00	0.00	0.00	0.00	0.00

The same is true for the Nasdaq 100. There have been only 14 other instances where the Nasdaq 100 has made 10 consecutive higher highs. In all cases but one (or 92.9% of the time) the market went on to post a higher close within 3 days. In 10 out 14 cases (71.4%), it was trading higher 20 days later. That 71.4% rate is still significantly better than the 60.11% chance of the market closing higher 20 days later from any given day.

Ticker	Date/Time	Close	Streak	3Day+	%Chg N1	%Chg N2	%Chg N3	%Chg N20
NDX	2/13/1986	139.16	10.00	1.00	0.72	1.13	0.34	5.63
NDX	1/14/1987	162.66	10.00	1.00	0.91	-0.09	2.33	8.19
NDX	5/11/1987	189.24	10.00	2.00	-0.14	0.55	0.79	0.12
NDX	2/1/1991	234.45	10.00	1.00	1.03	3.03	5.37	8.07
NDX	6/3/1991	280.93	10.00	1.00	0.07	-1.27	-2.39	-7.76
NDX	1/7/1992	339.64	10.00	1.00	1.37	3.14	2.20	2.14
NDX	6/21/1995	535.52	10.00	1.00	1.97	1.71	0.18	2.77
NDX	9/20/1996	743.42	10.00	3.00	-1.35	-0.92	0.31	1.80
NDX	11/10/1999	2,797.61	10.00	1.00	1.87	3.26	2.80	13.22
NDX	8/25/2000	3,931.25	10.00	1.00	0.58	0.53	0.95	-7.86
NDX	8/21/2003	1,314.65	10.00	0.00	-0.77	-0.61	-0.43	5.90
NDX	1/9/2004	1,520.46	10.00	1.00	1.27	0.28	0.90	-1.94
NDX	5/24/2005	1,540.47	10.00	2.00	-0.50	0.54	0.61	-0.40
NDX	7/22/2009	1,565.00	10.00	1.00	2.33	2.18	2.19	2.02
NDX	9/17/2009	1,721.09	10.00	0.00	0.00	0.00	0.00	0.00

These studies suggest that any dips likely will turn out to be good short and interim term buys.