Multi-Year Highs: A Longer-Term Perspective

We've been hearing so much about the Dow and other stock indices making multi-year highs that I decided to take a longer look and see what happens after we make a 1000 day high in the Dow. This roughly corresponds to a 3-4 year price high. I went back to July, 1952 (N = 13362) and found 889 occasions of 1000-day highs. Eighty days later, the Dow was up by an average of 3.13% (633 up, 256 down), somewhat more favorable than the average eighty-day gain for the sample: 2.56% (8535 up, 4827 down).

Interestingly, however, when we look at how much the Dow has actually risen during the 1000 day period in which it made new price highs, the forecast for the next eighty days is impacted greatly. When the Dow has risen less than 30% over the 1000-day period (as is the case at present; N = 64), the next eighty days average a gain of only .69% (39 up, 25 down). When the Dow has risen more than 30% over the 1000-day period, the next eighty days average a gain of 3.32% (594 up, 231 down).

In general, the stronger the Dow's performance over the 1000-day period, the more favorable the outlook for the next 80 days. When the Dow makes a 1000 day high, but is up only modestly in that period, the next 80 days actually underperform the long-term historical norm.