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(1/11/14)
With a nearly 30% gain in 2013 that made 5 years in a row for a
positive return. Historically there has only been "5"
other times when this has occurred as shown in the table below for the
S&P. Furthermore we have seen "3" events since 1995
which is remarkable considering prior to 1995 there were only three other events
dating back to the early 1880's. Meanwhile all of these 5 year
events yielded returns of 100% or more. However notice the returns
in the 6th year were either barely positive or negative. Thus the
odds of another big year in 2014 are highly unlikely based on past events.
| Time |
5 Year |
5 Year |
% |
Following |
| Period |
Low |
High |
Return |
Year Return |
| 1897-1901 |
3.98 |
9.20 |
131.2 |
2.6 |
| 1924-1928 |
8.76 |
24.75 |
182.5 |
-11.9 |
| 1982-1986 |
102.20 |
254.87 |
149.4 |
2.0 |
| 1995-1999 |
457.20 |
1473.13 |
222.2 |
-10.0 |
| 2003-2007 |
788.90 |
1576.09 |
99.8 |
-38.5 |
| 2009-2013 |
666.79 |
1849.44 |
177.4 |
? |
Next let's look at some chart of these prior events starting
with the early 1900's first. The run from 1897-1901 (points a to b)
was followed by a 33% correction (points b to c). However this was
then followed by a higher high by 1905 (points c to d). Meanwhile
after the 1905 high the S&P then traded sideways through the early
1920's. 
The next event
occurred from 1924 through 1928 (points a to b) however the S&P 500 didn't
actually peak until the Summer of 1929 (point c) as it gained an additional 30%
before reversing strongly in the Fall and Winter. This was then
followed by 87% correction (points c to d) in the S&P. Meanwhile
it took 25 years before the S&P was able to rally back to its
previous 1929 high (points d to e). 
More recently in the
1980's the S&P rallied for 5 years in a row from 1982 through 1986 but
didn't peak until the Summer of 1987 (point c) as it tacked on another 32%. This was then
followed by a quick 36% correction in the Fall however in this case the
market shrugged it off and continued higher through the 1990's. 
Finally the last two
events from 1995-1999 and 2003-2007 (points a to b) were followed by
significant corrections. 
To sum things up the previous
"5" times the S&P was up 5 years in a row significant
corrections followed so we shall see how things pan out this time
around. Naturally the long term bullish scenario is that any
correction over the next year or two will be short lived (much like 1987) and not exceed 30%
(points a to b) with the market heading higher as shown by the green
line. Meanwhile the most bearish scenario is that the S&P will
eventually make a lower low and retest the trend line connecting the 2002 and
2009 lows somewhere around the 600 level (point c). An alternative
bearish scenario is that the S&P will go through a choppy consolidation
phase over the next several years similar to what occurred from 1905 through
1922 as shown by the purple line. In my opinion this may end up being the
most likely scenario of the three which will end up frustrating both the bullish
and bearish crowd during the next several years. 
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