Is market due for a “dip”? S&P 500 now up nearly 100 trading days without a correction.

Market historians are correct to point out that the stock market tends to have a price correction of at least 5% every 118 days (according to David Bianco at Deutsche Bank).  Since we are now over 100 days since the last 5% correction it would seem that we are due for a pull back in the market this month or next. That said, Lou Basenase of Wall Street Daily made a good point that one needs to consider the standard deviation for the number of trading days between dips.  It turns out that the syandard deviation for the number of days between 5% dips is 92 days.  So, yes, the average is 118 days but the market since 1960 has gone as long as 350 days between dips and went over 150 days as recently as 2011.  I include Lou’s chart of the distribution of number of days between dips below. He also looked at the time span between 10% corrections and found a similar outcome i.e. that while we are approximately 380 days since the last 10%+ correction there is historical justification for the present rally to continue.  Lou concludes “it would hardly be a statistical anomaly if we went another 100 trading days without a pullback and another 380 days without a correction“.  I am reminded of the Mae West quote – “too much of a good thing can be wonderful” -eh?  Jeb B. Terry Sr. April 12, 2013

 

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