The big bounce off the December 24 lows continued last week, as the S&P 500 Index added 2.9% for the week. In fact, it has gained 2.9%, 1.9%, 2.5%, and 2.9% over the past four weeks for a total gain of 10.5%. Of course, the S&P 500 did have its worst December in 87 years and worst fourth quarter since the 2008-09 financial crisis, so stocks were historically oversold coming into 2019. Still, this bounce is quite impressive.
Just what could this extreme strength be telling us? “Here’s the catch: Stocks have been up huge the past four weeks, but history also tells us that being up more than 1.5% for four consecutive weeks actually tends to see continued outperformance going out the next three months. Don’t fight the trend is another way to put it,” explained LPL Senior Market Strategist Ryan Detrick.
As our LPL Chart of the Day shows, the S&P 500 tends to continue to outperform after similarly strong four-week stretches. Since 1950, after being up 1.5% or more for four consecutive weeks, the index’s average return going out 8 and 12 weeks has been more than double its overall average.
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