Records are made to be broken
A long, long time ago, someone witnessed
something that had never happened before. Human kind was
astounded by the event and it was decided that a record of the
event would be made. A stone tablet was selected and a stone
carver set to work with hammer and chisel. After great effort a
record of the event was sculpted from stone for all to see.
Then something even better happened. It was
decreed that the stone tablet record was to be amended to
reflect the new event. A new record was fashioned and then
someone asked what shall be done with the old record. A query
was sent to the great leader and a discussion ensued. It was
then decreed that out dated records of events shall be
destroyed. And with that the stone carver broke the record and
said allowed, ‘records are meant to be broken.’
The longer records are kept the more
difficult it becomes to break them. But records are made to be
broken and with time, most records tend to fall. The Dow is
currently on a record run having advanced a record 19 of 21
trading days. I am guessing, I bet if you search historical
markets going back far enough, such an event has happened
before, but not with the Dow.
With the first day of May being up the Dow
has advanced 20 of 23 trading days, which has happened twice
before, in July 1955 and October 1968.
I went a step further and found that during
move higher that ended July 6, 1955, the Dow advanced 21 of 24
trading days, which is the only record of such an event. Three
are no records of the Dow advancing 22 of 25 trading days.
After the final advance in the series, which was also the
largest, the Dow saw one large down day, which started a two
week consolidation.
In October 1968 the Dow capped off an
equally impressive string advancing 20 of 23 trading days. The
Dow closed down three days in succession after the last
advancing day then ground higher. Essentially the Dow traded
sideways for several weeks before the advance continued.
Before getting to the current chart, there
are several similarities with these historical runs. Towards
the end both saw some short-term upside acceleration. In 1955
it was a bit more obvious than in 1968. In both 1955 and 1968
there was a mild consolidation that lasted several weeks, and
then prices moved to new highs. In 1955 it was an
intermediate-term high and in 1968 the higher high turned out
to be a significant high as the Dow stalled just below 1,000.
The current move higher is equally
remarkable. If the Dow closes higher on May 2 it will mark an
impressive 21 up days out of 24 for only the second time on
record. Closing higher on May 2 and May 3 will be something
that has never been seen before. In light of the healthy start
to trading on Wednesday May 2, it looks like the stone carver
needs to dust off his hammer and chisel again.
Looking forward past the next few days, we
know the current run will run its course and a consolidation
will ensue. Whether the consolidation starts today or a week
from today is of little concern for those with a longer time
horizon. Historically May is the third most difficult month for
the market so it makes sense for a consolidation to develop
during May. Fortunately, the historical precedents tell an
important story. Powerful moves of this nature are rarely seen
at important high. While a consolidation will eventually take
place, there is no need to panic as history suggests once a
consolidation lasting a couple of weeks or so, baring an
unforeseen catastrophe, the indices should move to higher
levels. Considering the state of the calendar and historical
precedents, by the end of May we should be hearing talk of an
expected summer rally.
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