The Rally's Relentless Bid Is "Unprecedented"

Via Dana Lyons' Tumblr,

The persistence of the recent stock rally is nearly unprecedented in the past 50 years.

Perhaps the most impressive aspect to the stock market rally over the past several months has been its relentlessness. Much to the bears’ chagrin, it has felt as if the market is on a one-way ticket higher. If you have observed this reluctance on the part of stocks to go down, you are not imagining things. By some quantitative measures, the recent bid is among the most relentless the market has seen in the past half century.

For example, it’s been our recent observation that, no matter how the market opened, it has consistently closed the day strongly. We took a look at that apparent trend more objectively and found some evidence to back up our observation.

Specifically, we looked at the recent intra-day behavior in the S&P 500. We did this by measuring the index’s closing price minus its opening price on a daily basis. Positive readings indicated strong intra-day action while negative readings signaled weakness. We, in turn, tallied all of the negative intra-day readings (e.g., days when the S&P 500 closed below its open) over rolling 25-day periods.

Going back 55 years, the average cumulative intra-day losses over a 25-day period is about 660 basis points, or 6.6%. As of yesterday (October 10), the last 25 days have seen a grand total intra-day loss of just 96 basis points, or 0.96%. If that seems small, it is.

In fact, outside of the period ending November 26, 2014, this is the smallest cumulative 25-day intra-day loss in the past 46 years – and the only one registering less than 100 basis points.

So, what is the message behind this relentless bid? Is the market over-extended and overdue for a pullback? Or is the bid a sign of persistent demand, standing ready to continue to buoy stock prices?

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In a premium post at The Lyons Share, we take a quantitative look at similar relentless bids throughout history and the subsequent reactions in the stock market. The results help orient our expectations of the potential aftermath to our present situation. If you’re interested in the “all-access” version of our charts and research, please check out our new site, The Lyons Share. Considering what we believe will be a very difficult investment climate for awhile, there has never been a better time to reap the benefits of our risk-managed approach. Thanks for reading!