Based on my analysis of the S&P 500 technical chart patterns after new all-time highs were set in 1999, 2000, 2007, 2018 and 2019, the index is ripening for a significant correction or a crash. The volatility increasing for a market that is making new all-time highs near the end of a secular bull market and economic expansion is quite logical.
Each of the four new all-time highs in the chart below were followed by corrections of 5.9% to 17.5% which began within 8 to 38 days after the new high was established. As of the 29th of November, 23 days have passed since the most recent new all-time high was made on October 28, 2019.
The table below depicts the days to a correction after a new all-time high was established and the percentage decline from the peak after the new high was made to the trough of the correction. For a new all-time high to qualify as a correction to begin or start the S&P 500 had to decline by at least 2% from where the index closed on the date of the new all-time high.
During the adolescent stages of a secular bull market post all-time new high volatility is low as the market steadily climbs to newer all-time highs. The chart below for 2017 is a perfect example since there were dozens of new all-time highs. Yet for 2017, unlike 2018 and 2019, the S&P 500 did not experience any 2% post new all-time high corrections.
A two-year period which had similar post-new all-time high volatility as 2018 and 2019 was the 24 months August 2006 through July 2008 period.
The chart below depicts that from August of 2006 to January of 2007, the S&P 500 advanced steadily to new all-time highs without a major correction. The volatility increased after the S&P 500 made a new all-time high in January 2007. After recovering from a 5.9% correction the index established a newer all-time high in July 2007, which was followed by a 9.4% correction. In October of 2007, the S&P 500 made its final all-time high prior to the crash of 2008. The index declined by 56.8% and October 2007’s new all-time high was not exceeded until March of 2013.
The corrections from the three 2007 all-time highs are similar to the all-time highs for the 2018/2019 period. The declines for both periods were above 5%. The 2018/2019 period’s longest number of days before a correction began was 38. This compared to the highest being 31 days for 2007. Both 2018/2019 and 2007 also experienced at least one double digit decline after the new all-time high occurred.
The 1995 to 2002 and the 1999 to 2000 charts below confirm that post new all-time high volatility increases in the late stages of a secular bull market and economic expansion. All-time new high volatility increasing for 1999 and 2000 prior to the steep decline to the 2002 low is very similar to what happened in 2007, before the 2008 market crash.
The probability is high that the S&P 500 will soon correct by a minimum of 5% from its peak. The secular bull is now a full-grown adult. The current US economic expansion is the longest on record. For these reasons the S&P 500 is also ripe for the much greater minimum peak to trough decline of 50% which normally occurs at the end of a secular bull market and economic expansion.
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The Bull & Bear Tracker’s signals are utilized to trade exchange traded funds (ETFs) which mimic the performance of the S&P 500. A long ETF is utilized when the signal is green. A short or inverse ETF is utilized when the signal is red. When the S&P 500 advances by 10% while under a green signal the long ETF increases by 10%. Conversely, should the S&P 500 decline by 10% while a red signal is in effect the inverse ETF would increase by 10%.
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