I am taking a quick look at how powerful rallies have been in the past decade. For this market study, I am defining “rally” as monthly gains before getting a 2% or more pull back. So I am using a monthly time frame for this analysis, but a similar one could look at a weekly or some other shorter time frame. The following chart lists all such instances when there has been a rally and how powerful that rally was (what I refer to as the “magnitude” of the rally). Note that I am using the S&P futures for my data.
Date Range Magnitude of Rally Jul-10 6.99% Feb-10-Apr-10 10.24% Mar-09-Dec-09 42.87% Apr-08-May-08 5.73% Aug-07-Oct-07 6.26% Mar-07-May-07 8.57% Jun-06-Jan-07 12.75% Nov-05-Apr-06 8.52% May-05-Sep-05 6.45% Feb-05 1.88% Aug-04-Dec-04 9.89% May-04-Jun-04 3.10% Mar-03-Feb-04 31.60% Oct-02-Nov-02 14.35% Mar-02 3.82% Oct-01-Dec-01 9.91% Apr-01-May-01 7.53% Dec-00-Jan-01 3.87% Aug-00 5.72% Jun-00 3.22% Mar-00 10.44%
Below are some basic stats around the magnitudes:
Now we are clearly in the midst of a rally, one that, according to my definition, began in the beginning of September 2010. Since September, the Spooz are up 26.7%, which is significantly higher than the average and median magnitudes. In fact, there have been just two instances when the rally was greater than the current 26.7%- the one that lasted from March 2003-February 2004 was a 31.6% rally while the one that lasted from March 2009-December 2009 was a 42.9% one. Note, however, that the former was 11 months and the latter was 9 months in duration. Let’s assume the extreme case here and suppose that we do see another rally that is 42.9% in magnitude. That would put the futures at roughly 1498. And any pull back would be less than 2%. That seems a bit much, but you never know. So let’s tone it down and assume a 31.6% rally like the one we saw in early 2003 until early 2004. That would bring the Spooz up to 1379.50. Ok, a little more within reach. Either way, this look back study is just a reminder that rallies even more powerful than the one we are currently seeing have happened in the past- twice in the last 10 years, to be exact. So I wouldn’t be so doubtful that this rally could slowly take us up another 50 points even.
Average 10.18% Median 7.53% Max 42.87% Min 1.88%