Record Highs in 2024 – By David Vomund

Written and Submitted to IVCBA By David Vomund

I recently saw an article from Business Insider titled, “An ‘Extremely Rare’ Stock Market Signal With a 100% Accuracy Rate is Flashing and Points to Record Highs in 2024.”  Here is a link:  https://markets.businessinsider.com/news/stocks/stock-market-outlook-2024-new-highs-extremely-rare-signal-sp500-2023-12.

With a title like that I had to read on!  In truth, articles with similar titles are commonplace and I immediately become skeptical.  An “extremely rare signal” usually means it is statistically insignificant.  At other times the model just isn’t accurate.  With that in mind, I began testing the methodology to see if it works and to verify the recent bullish signal.

In the Business Insider article, strategist Ryan Detrick, on every business day, counts the number of S&P 500 stocks that close at a 20-day high.  A rare bullish signal occurs when 60 percent or more reach their 20-day high.  Detrick claims that since 1972 there were 15 signals and the S&P 500 was higher one year later every time with an average gain of 18 percent.

I reconstructed his model and found the last signal occurred on December 1.  Before that the signals were 11/10/22, 8/12/22, 6/5/20, 1/18/19, 10/31/14, etc.  As Detrick implied, the S&P 500 was higher one year after each of the above signals.  Sometimes there were tremendous gains, such as a 32-percent gain after the 6/5/20 signal.  Other times the gains were minimal, like the 3-percent gain after the 10/31/14 signal.  

Interestingly, the buy signals seem to come in clumps.  There were six signals in 2009-10 but none appeared in 2015-17.  By the way, 2009-10 was one of the best buying opportunities of our lifetimes.  No signals occurred in 2007, right before the devastating 2008-09 Financial Crisis.  

I can’t exactly duplicate Detrick’s analysis because my statistics are based on the current S&P 500 components.  Nevertheless, I’m happy to say that Detrick’s analysis seems to be accurate.  The December 1 signal is off to a great start.  

Why does this system work?  The best market environment occurs when the majority of stocks participate in the advance.  Until December, no signals were reported in 2023 because the gains were a result of just a handful of large-cap technology stocks.  But recent advances are broad-based.  Over the last month the S&P 500 is up 5 percent while the Russell 2000, a measure of small-cap stocks, is up 10 percent.  It’s easier to make money when most stocks are rising.  That is happening now.  Bottom line:  Odds are it will happen next year, too.

David Vomund is an Incline Village-based Independent Investment Advisor.  Information is found at www.VomundInvestments.com or by calling 775-832-8555.  Clients hold the positions mentioned in this article.  Past performance does not guarantee future results.  Consult your financial advisor before purchasing any security.