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A Massive Stock Market Break Out May Be Near If History Proves Correct

By Michael KramerETFsOct 18, 2019 01:50PM ET
www.investing.com/analysis/a-massive-stock-market-break-out-may-be-near-if-history-proves-correct-200474989
A Massive Stock Market Break Out May Be Near If History Proves Correct
By Michael Kramer   |  Oct 18, 2019 01:50PM ET
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This post was written exclusively for Investing.com

The S&P 500 may be ready for a big move higher if history repeats itself. The index has traded sideways for 22 months, while also seeing a drawdown of 20%. The last time that happened was in 2012 and 2013. Something similar happened in 2015 and 2016. Both times the S&P 500 went on to see massive gains for more than a year.

There are even more parallels, such as the index dividend yield inverting with the U.S. 10-year Treasury rate. The coincidences during these two previous periods and today are rather startling and could be a sign of good things to come.

S&P 500
S&P 500

The 22-Month Period

The last 22 months for the S&P 500 have been rather dull with the index essentially trading sideways since January 26, 2018. That was when it rose to what was then an all-time intraday high at 2,873. Since that time the S&P 500 has risen by just 4.35% to 2,998 as of Oct. 17, and has spent the majority of its time below the 2,873 level. It also saw a massive 20% drawdown from peak to trough in the fourth quarter of 2018.

S&P 500
S&P 500

A similar thing happened from April 2011 until December 2012 with a long 22 month period of consolidation. In April 2011, the index was trading at 1,363, and by December 2012 it had risen to only 1,426, a gain of 4.6%. It also saw a drawdown of about 20% during the second and third quarters of 2012.

If that wasn’t enough, the S&P 500 flatlined for 22 months starting in February 2015 at 2,104 and proceeded to trade sideways until November 2016 rising to just 2,199, a gain of 4.5%. It also saw a steep sell-off during that period of consolidation, with the index falling by almost 16%.

The 18th Month And The 4-Month Consolidation

Even more interestingly, it was during the 18th month that the index rose above a major level of resistance, which was then followed by four-months of consolidation. In the case of 2012, the S&P 500 rose above a level of approximately 1,385 in August, holding that break out for four months. In 2016, the break out occurred in July when the index rose above 2,120, and then proceeded to hold the break out for four months. Now, the index has risen above resistance around 2,875 in June, and has held that level for what will be its fourth month at the current pace through the end of October.

The Fifth Month

It was then on the fifth month that it finally broke out in a meaningful way starting the next significant move higher. In 2013 it took place in January, and 2016 it took place in December. In both cases the index never looked back, rising by roughly 50% and 37%, respectively.

Yields

Yields
Yields

If that wasn’t enough for you, the concordance runs deeper. Over that same time we saw interest rates fall sharply on the 10-year U.S. Treasury yield as well. It was during 2012 and 2016 that interest rates on the 10-year Treasury yield fell below the dividend yield of the S&P 500. The same thing has happened again in 2019.

The similarities are eerie. But it is the outcome that may prove to be profitable, at the same time proving that the bull run for the equity market is far from over. If history repeats itself, then November may prove to be the start of the next major leg higher for the S&P 500.

A Massive Stock Market Break Out May Be Near If History Proves Correct
 

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A Massive Stock Market Break Out May Be Near If History Proves Correct

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Comments (36)
shark tank
shark tank Oct 21, 2019 10:58PM ET
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you are correct!
mahesh goenka
mahesh goenka Oct 21, 2019 9:53PM ET
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history never repeat
Marcus Vrijsen
Marcus Vrijsen Oct 21, 2019 2:07PM ET
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The only reason the market broke out was due to the credit impulse of the EU in 2014 and the credit impulse of China in 2016.. . . Both are out of ammo now, just like the US. I wonder who is supposed to provide the dough for this massive break out this time.
Luu Hung
Luu Hung Oct 21, 2019 2:07PM ET
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No worry mate. It's must be Nigieria or Zimbabwe this time.
YungJun Kim
YungJun Kim Oct 21, 2019 3:59AM ET
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I read your article, which it's so interesting for me. Then, did you think of the view of macro economy cycle?If it works as demonstrated, now can be the starting time to going up. But with circumstance as down-turning indices, Brexit delayand Trade-war, will it be realized? Isn't there a need to consider other factors like 10year-recession cycle?
Alex Godoy
Alex Godoy Oct 21, 2019 3:59AM ET
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Considering other factors shouldn't be a need, but rather a requirement. Technical analysis doesn't predict recessions. Fundamentals do.
KAMAL AHMED
KAMAL AHMED Oct 20, 2019 7:05PM ET
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Nothing is going to work except tweets.
Rita Brattkus
Rita Brattkus Oct 19, 2019 12:38AM ET
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Stock market will keep on climbing as long as Trump is our leader. Dem.communists would destroy our economy.
robert ybarra
robert ybarra Oct 19, 2019 12:38AM ET
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Uh it climbed for 8 years under Obama and he inherited a horrible hand me down from W Bush .. Trump has done nothing but bloat this bubble to near bust !!
KAMAL AHMED
KAMAL AHMED Oct 19, 2019 12:38AM ET
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Chris Sundo
Chris Sundo Oct 19, 2019 12:38AM ET
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robert ybarra   -- I agree too. Trump has been an empty can goosing the market higher on hot air. --- Today's rise was actually from injecting 85Billion into the market. So everyone bought everything. ---- The moment the market makes a new high there will be a sell-off, just like the last few times.
Ivan Couto Jr
Ivan Couto Jr Oct 18, 2019 5:06PM ET
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So this move would be caused by? Good weather, astrology, martians ET massive purchases? Or the same repurchases using algos and any news (good or bad) to justify the continuous money transfer from people to the 0.1% richests?
KAMAL AHMED
KAMAL AHMED Oct 18, 2019 5:06PM ET
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Lol
Happy Life
Happy Life Oct 18, 2019 1:37PM ET
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Aaaaah, I knew it knew it knew it!!! Several large trades in S&P contracts were made just prior to major geopolitical events or statements by the President that drastically moved the markets. Whoever made those trades netted billions of dollars.https://www.vanityfair.com/news/2019/10/the-mystery-of-the-trump-chaos-trades
Dee Mehta
DMFINANCE Oct 18, 2019 1:09PM ET
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We will first see 2000 before any move higher
eric Berns
eric Berns Oct 18, 2019 11:34AM ET
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Looks like next ride up is to spx 3200. That should be the contrarian play with all the walls of worry out there. Will a Brexit deal be the catalyst ? A China deal looks sketchy and impeachment is on the way. Either way Im out. Never play the last leg up or down. GLTU
Kam Tal
Kam Tal Oct 18, 2019 11:19AM ET
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There is a great chance I am going to win the lottery.  History shows that there have been multiple instances that someone living in the USA has won the lottery and I just happen to live in the same country.  Can't believe how strong the correlation is. What a lucky coincidence for me.
Pwr Strk
Pwr Strk Oct 18, 2019 11:19AM ET
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you don't even buy lottery, so there's no correlation
Shashi Bb
Shashi Bb Oct 18, 2019 10:55AM ET
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The nonsense published in this article is amazing!!
peter neal
peter neal Oct 18, 2019 10:51AM ET
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Buy now before the meltup when Elizabeth Warren becomes President and the Democrats control Congress. I just sold my dog and bought some more stocks.
Scared Shitless
Scared Shitless Oct 18, 2019 10:43AM ET
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ROFLMAO. What a waste of 45 seconds. Your missing the intermediate trends underneath all that.;)
Matthew Terry
Matthew Terry Oct 18, 2019 10:35AM ET
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P.S. Your article is profoundly terrible for the industry, not because I think you are wrong or because the content is ridiculous, but because people less informed than me might actually think anything you say here will reflect reality. Shame on you, you will lose people a ton of their hard earned money, maybe not soon because your guess has a chance of being right, but eventually your predictions will crash with the market. Trust is an author's greatest asset, and you have lost mine. I hope others realize the same.
Matthew Terry
Matthew Terry Oct 18, 2019 10:29AM ET
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Michael Kramer, I'm looking for ways to reduce the amount of time I spend reading articles. Thank you for publishing this drivel, I can now filter yours out.
Francis Tremblay
Francis Tremblay Oct 18, 2019 10:17AM ET
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At least... Please! Put a tight stop guys. Because if goes UP great! But if it goes down... It will goes as fast down, even faster than if it goes up. Newton law applies at the market as it apply to nature... Have great trade or great invest. Don't forget, you better be safe than sorry!
James Ayton
James Ayton Oct 18, 2019 10:17AM ET
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If it goes down faster than it goes up, then you are making the case that Newton's Law doesn't apply to the market.
Velarie Lee
Velarie Lee Oct 18, 2019 10:00AM ET
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Wake up, plse!! At this level, why don’t you put in your own money!!
Lk Lo
Lk Lo Oct 18, 2019 9:59AM ET
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not understand what u r talking about
jeff scott
jeff scott Oct 18, 2019 9:59AM ET
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I understand the pessimism, I do.. however.. investing is more reliant upon historical behavior then current financial and political variables. Ignoring trends such as this can be a costly mistake. I would aplaud Mr. Kramer for pointing out these repetitive trends. very good food for thought.
Joseph Loud
Joseph Loud Oct 18, 2019 9:48AM ET
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Just to name a few problems : China-USA Trade dispute far from solved- USA Europe trade dispute going worse - China growth slug - US Consumers on brakes - Brexit still hard - Hong Kong unrest still going - Deutsche bank in agony - Mid East same old wars - and as a result interest rates plunging to stave off a bigger crash . So why traders should push up the market ? To  plunge from a higher cliff ?
Rachel Sheve
Rachel Sheve Oct 18, 2019 9:42AM ET
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Ugh! An article like this is prepping for a market crash! This just means traders/investors will over leaverage themselves with longs and if doesnt rally, there will be a sell-off that woukd snowball itself into a crash!
Show previous replies (2)
Matthew PM
Matthew PM Oct 18, 2019 9:42AM ET
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ahhh I keep frogetting to spell check! haha :)
Matthew PM
Matthew PM Oct 18, 2019 9:42AM ET
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so I figure most people can only really do dollar cost averaging. so bait is taken no matter what. BUT. IF. We we or Most can be positive, we humans can do great things. but it starts with a positive attitude. of course us few hear are not enough. Hopefully most of the people out the in the world can stop their doom and gloom and hate.
Mike Makkar
Mike Makkar Oct 18, 2019 9:42AM ET
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Stock market has leas bearing on the economy. Its all flow of capital! And furthermore, Its not gloom and hate! Look what happened in October of last year. Market was expecting an upswing because we had a great economy and nothing could go wrong! Instead, market tanked 20% in 2 months!
Pwr Strk
Pwr Strk Oct 18, 2019 9:42AM ET
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your historical argument is the same as the article you're trying to prove wrong ... LOL
Peter Murton
Peter Murton Oct 18, 2019 9:42AM ET
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Matthew PM  I have a positive attitude about taking money from all the irrationally positive people who persist on buying high while the POTUS insists on dynamiting the foundations of the global economy.
Bob Flippa
Bob Flippa Oct 18, 2019 9:39AM ET
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please
Philip Van Langenhove
moneytrondoctor Oct 18, 2019 9:39AM ET
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Truly ? I rather expect a crash of 35% !!! Ignore such articles and realise that S&P 500 , Nasdaq are very very expensive right now. The chance of stocks going much higher is very little. Buy some gold miners , they are still rather cheap...
Matthew PM
Matthew PM Oct 18, 2019 9:39AM ET
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there expensive compared to a year ago but not teo years a d they seem to be on track from any time in the past. this dip in December and now is just money changing hands from the pessimistic to the positive a d to the smart pessimistic that know better :)
MO Zapata
MO Zapata Oct 18, 2019 9:38AM ET
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I made a left turn in a red light and i found a really good coffee shop. Now, everytime i see a red light i turn left in the hope of a goof coffeeshop.
Matthew PM
Matthew PM Oct 18, 2019 9:38AM ET
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maybe not a coffee shop but, you're always going to find something interesting aren't you?. Smile :-)
 
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