Merrill Lynch examines why an S&P 500 breakout after an extended pause has historically signaled strong forward returns. The paper argues investors may be underestimating technical conditions noting prior long pause breakouts produced 15.6% average 250 day gains and returns 91% of the time.
What happens if the S&P 500 goes to new highs?
Merrill Lynch
Stephen Suttmeier, Jue Xiong
Research
37 Pages
Key Takeaways
Long Pause Breakouts: Since 1929, only 23 signals occurred, yet 250 day forward returns averaged 15.6% with markets rising 91.3% of the time.
Seasonal Tailwinds Persist: June through August ranked the second strongest three month period since 1928, delivering 2.97% average returns and gains in 62.5% of observations.
Breadth Indicators Improve: NYSE advance decline lines reached new highs while 14 stocks triggered 90 day breakouts versus only 3 breakdowns on June 3, 2016.
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