A relatively high percentage of SPX components are at new annual highs
Although the
S&P 500 Index (SPX) just snapped its
longest winning streak in two years, the broad-market barometer has been on a quest for record highs, hitting all-time intraday peaks in each of the past five sessions (including today). As such, 30% of optionable S&P stocks have notched 52-week highs in the past 10 trading days -- a signal not sounded since 2014. If history is any indicator, stocks could experience some weakness over the next month, but stronger-than-usual upside three months from now.
According to Schaeffer's Senior Quantitative Analyst Rocky White, this level of SPX stocks at new highs has been achieved only eight other times since 2005. The last signal -- counting only the first one in three months -- was in December 2014, which resulted in a one-week pullback of 3.52%, and a one-month loss of 2.38% for the SPX.
As alluded to earlier, the S&P tends to underperform in the short term after these signals. The average return is negative through one month after a signal, compared to positive anytime returns since 2005. Further, the index has been higher just 37.5% of the time two weeks out, compared to 59.6% anytime, and was up just half the time one month after a signal.
However, in the longer term, the S&P tends to outperform after these signals. Three months out, the SPX has averaged a return of 3.41% -- more than double its anytime three-month return -- and was higher three out of four times. Six months after a signal, the index has been higher a whopping 87.5% of the time, compared to 72.3% anytime, with a healthier-than-usual return of 4.88%.
Meanwhile, only 20.6% of S&P 500 Index components are at least 20% off their 52-week high -- the lowest since late 2014. Many healthcare stocks are among those more than 20% from an annual high, including biotechs
Mallinckrodt PLC (NYSE:MNK) and Perrigo Company plc Ordinary Shares (NYSE:PRGO), as well as healthcare technology concern Cerner Corporation (NASDAQ:CERN).
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