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Inflection Point Investing LLC
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Inflection Point Investing LLC is a Registered Investment Advisory firm in New York City.
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  • Is There Any Significance to the Russell 2000 Streak of 20 Up Days in 22 Trading Days 2 comments
    Mar 12, 2010 1:14 PM | about stocks: IWM
    Is There Any Significance to the Russell 2000 Streak of 20 Up Days in 22 Trading Days

    I knew the US equity markets were up a lot over the past month. I have watched many stocks shoot up some with strong fundamentals, others with less strong fundamentals. It seems as though everything was going up. However, I really did not know how long the streak was unbtil this morning. I heard the stat thrown out there by CNBC broadcaster Carl Quintanilla this morning when he said (about the rally) that “the Russell 2000 has been up 20 of the past 22 days.” I was like wow! Can it really be so many days?
     
    Like any good market strategist, I decided to look into this claim. Knowing that Mr. Quintanilla has an eye for stats like this I believed the stat to be true. But I also began to wonder how often has this happened in the past? And what happened to that index one month later, 3 months later and 1 year later after a streak like this.

    The Russell 2000 is an index that has not been around for that long. It has been around since September 1987. What is interesting about that is that is one month before the October 1987 meltdown in the stock market which saw a 20% drop in the US equity indices. What a time to start a new index I said to myself as I ran the numbers. (Note that I used Yahoo Finance for this exercise.)

    It turns out that there have been 10 instances which saw the Russell 2000 go up in 21 times in 22 days, and 11 instances which saw the Russell 2000 go up 20 times in 22 days. However, 19 of these 21 instances occurred on consecutive days during the January 27th 1988 through February 23rd 1988 time frame.  I used this consecutive day period as two periods. One date on January 27th and the second on February 23rd. Thinking about this extraordinary period in 1988. Perhaps since this was 2 months following the October 1987 stock market meltdown that the equity markets were so out of whack to the down side they were re-correcting back to the upside making up in a hurry for lost ground.

    So what happened 1 month, 3 months 6 months and 1 year after these three periods? All of the periods showed percentage gains. The January 1988 period stands out for its outperformance having the strongest retrurns perhaps because this was closer to the 1987 October market collapse. Whereas the February 23rd period lagged all three periods. Perhaps because it followed the strong gains from the January 1988 consecutive day period.

    Who knows what will happen in the next month, 3 months 6 months or 12 months to the current Russell 2000? If the past is any guide (and who knows if it is, with old saying like ‘US housing prices on a national basis do not fall’ getting tossed aside), then the Russell 2000 up 20 times in 22 trading days could signal further upside for the Russell 2000.

    Authored by Tom Henderson, Strategist JBH Capital.

    The accounts likely have long exposure to the Russell 2000.
     

    Date1/27/19882/27/19884/27/19887/27/19881/27/1989
    Index Price123.37134.17143.65148.77159.92
    % change 
    from 1/27/19888.7516.4420.5929.63
          
    Date2/23/19883/23/19885/23/19888/23/19882/23/1989
    Index Price132.52143.07139.2144155.41
    % change 
    from 2/23/19887.965.048.6617.27
          
    Date6/29/19957/29/19959/29/199512/29/19956/29/1996
    Index Price281.08299.23310.38315.97346.61
    % change 
    from 2/23/19886.4610.4212.4123.31


    Disclosure: The managed accounts likely have long exposure to the Russell 2000.
    Stocks: IWM
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Comments (2)
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  • ari5000
    , contributor
    Comments (366) | Send Message
     
    did the Fed flood the economy with trillions of dollars in 1988?

     

    13 Mar 2010, 11:22 AM Reply Like
  • Inflection Point Investing LLC
    , contributor
    Comments (626) | Send Message
     
    Author’s reply » Thanks for the comment.

     

    First my apologies as I just saw this comment today.

     

    Second, the Fed did massively lower rates following the 1987 crash. It took a while to put a floor under the market but the Fed cut rates massively.

     

    Appreciate the comment,

     

    Tom Henderson, Strategist JBH Capital.
    24 Mar 2010, 03:29 PM Reply Like
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