On Friday, we noted that September was the 5th consecutive month the S&P was in the red.

Ron Griess of the Chart Store took that data and looked at it in terms of ensuing months and years.

Historically, 5 consecutive months is not a good omen for equities . . .

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Monthly Price Performance, S&P

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Examples of 5 negative Price Performances, S&P


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Note: Yes, I know, we need a larger sample set than the past century. Let’s follow up and discuss that in 3011 . . .

Category: Data Analysis, Markets

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

10 Responses to “What Happens When S&P500 is Down 5 Months In A Row?”

  1. [...] What happens after five down months in a row for the stock market?  (Big Picture) [...]

  2. constantnormal says:

    Nice illustration of the fallacy of trying to predict noisy price data using only noisy price data … Ah, the tendency of these simians to try, try, try to perceive simple patterns in complex and multidimensional data …

    It would be nice to see historical instances where there were significant similar related data … Such as 24-30 months of central bank attempts to nail interest rates to zero, and persistently high unemployment, with a major international currency and economic bloc on the rocks …

    Whazzat? There is no such period, this time is a pretty much unique confluence of these things? I guess that we are in uncharted waters, then. ANYTHING can happen.

    Put that in your pattern filter pipe and let it smoke you.

  3. Greg0658 says:

    CN .. why its best to see the stream* a second before you need to .. FMCitBPtP :-|
    * trickle/flood

  4. ApacheTrout says:

    With N = 120, there 56 months of negative returns. So this would imply a slightly less than 50% chance of a negative month.

    Another way to look at it is to break it down by percentage gain/loss. Again, with N=120
    +>20% = 14, 11.67%
    +>10-20% = 12, 10%
    +>5-10% = 12, 10%
    +0-5% = 23, 19.17% (0.0% counted as positive)
    -0-5% = 21, 17.5%
    ->5-10 = 13, 10.83%
    ->10-20% = 13, 10.83%

    If I were a wealthy investor, I’d break it down 60% positive (looking for short term gains), and 40% shorting stocks. But I’m not a wealthy investor, and such simple thinking may be the reason why.
    ->20% = 8, 6.67%

    Conclusions
    1) Greater than 1/3 of the time, the monthly returns have been between -5% and +5%. No surprise there, as most monthly returns are slightly positive or slightly negative, even outside this data set.
    2) More likely to have +>20% month than a ->20% month. Almost twice as likely, but not quite.
    3) Outside of the 2008 meltdown, a ->20% month only occurred twice (both times in 1974). This gives evidence that 2008 is an extremely unique event, and that financial conditions would probably need to mimic or be as dire (i.e. multiple financial firms failing) to repeat such significant negative returns.

  5. Realist says:

    What else is there to say that Constantnormal didn’t cover?

    Well stated. Case closed. Get the popcorn out and watch the fireworks; we’ll all learn together.

  6. jib10 says:

    The one thing that stands out to me is that each month was worse than the previous month. According to this data we have never had 5 months in a row where the losses increased. We had one 4 month run in ’74.

    And it is not THAT small a sample size. Goes back to at least ’37, roughly speaking 900 months. Not great but still in the last 900 months or so we have never had 5 months that the losses increased each month, we have had 4 months in a row only once.

    This is worthless for predicting what will happen next month. The odds are we will break the streak in Oct but then the odds were we would never set the record. It is the kind of data point people use after the fact to point out “see, something really was different” after it has been clear to everyone who went through it that it was not a normal run.

    But I cant help myself, I find it interesting.

  7. Realist says:

    jib10

    Your point:

    “This is worthless for predicting what will happen next month. The odds are we will break the streak in Oct but then the odds were we would never set the record. It is the kind of data point people use after the fact to point out “see, something really was different” after it has been clear to everyone who went through it that it was not a normal run.”

    Is where the rubber meets the road. We have NEVER been in this time before, not b/c we haven’t had recessions before, but b/c we’ve never had the same recession, with this many world players involved in the recession, with this much speed/technology of moving the little pixels on our screen.

    In the end it is interesting, but it is not helpful. We’ll only know after the fact-we are, IMO, in uncharted waters.

  8. royrogers says:

    doug Kass should avg down on XLF and Buffet do the same with BAC.

  9. [...] // counterparties The S&P 500 declining for five consecutive months does not augur well for its near future –The Big Picture [...]

  10. [...] What happens after five down months in a row for the stock market?  (Big Picture) [...]