Why should we care about new highs in these markets (and many stocks within each market)?
Once price enters uncharted territory, there’s virtually no price memory or overhead supply to prevent it from trending higher. It is why most analysts believe that when markets (or stocks) hit new highs, they have a propensity to move higher. Momentum typically yields more upside, especially if the market or stock is in new territory.
Looking back in history, there have been 11 similar instances of new all-time highs following bear markets, defined by prior declines of at least -20%. The table below provides a comprehensive overview of the expected return profiles associated with this study, done by Nautilus Research.
It is important to note that while continued upward momentum is typically observed, returns in the 1-week to 2-month range can be mixed. In the case of 2007, it essentially marked a ‘double top,’ but in the other 10 instances, strong returns were witnessed from 5 months up to 1 year forward.