-We used the Dow Jones Industrial Average through June 30th
-We looked for markets with a down trending 200-day (40-week) Moving Average
-We wanted to see a recent uptick in this moving average (weekly close greater than prior week)
-And we wanted to be within 6% of highs on the Dow
Below are all the instances going back to the 1950s and there's some takeaways to note:
1) The average returns are slightly weaker almost across the board relative to the entire sample
2) There's notable weakness in the forward 2 and 3-month timeframes
We've seen some stories comparing the current market to 97-98 currency crisis markets but one big difference we'd be quick to note is that from 1995 to 2000 the 200-day MA on the Dow was trending up pretty much the entire time. A more similar market might be from 1956-1958 (seen in 2nd chart below) where you actually had the 200-day MA flatten out/decline for a period of time much like now. That market whipped around for a few years, experienced a decent sized flush and then went on to put in much higher highs from 1959 onward.
We'll see if the breakout that's underway can sustain and we're able to buck the trend of the 2 and 3-month weakness that we've seen in past instances.
1950-1983 - *(1956-1958)*