This post was written exclusively for Investing.com
They can be ready for a big step higher if history repeats. The index has been traded sideways for 22 months, while there is also a drawdown of 20%. The last time this happened was in 2012 and 2013. Something similar happened in 2015 and 2016. Both times the S&P 500 saw huge gains for more than a year.
There are more parallels, such as the index dividend yield that reverses with the US Treasury rate. The coincidences during these two previous periods and today are quite shocking and can be a sign of good things to come.
The 22-month period
The last 22 months for the S&P 500 have been rather boring with the index trading mainly aside since January 26, 2018. That was when it rose to what was then a record high of all time at 2,873. Since then, the S&P 500 has risen by only 4.35% to 2,998 from October 17 and has spent most of its time below the 2,873 level. It also saw a huge 20% drop from peak to trough in the fourth quarter of 2018.
Something similar happened from April 2011 to December 2012 with a long consolidation period of 22 months. In April 2011, the index was trading at 1,363 and by December 2012 it had risen to just 1,426, a gain of 4.6%. It also saw a decrease of around 20% in the second and third quarter of 2012.
If that wasn't enough, the S&P 500 fell for 22 months from February 2015 to 2,104 and traded sideways until November 2016 rising to just 2,199, a 4.5% gain. It also saw strong sales during that consolidation period, with an index falling by nearly 16%.
The 18th month and the 4-month consolidation
Even more interestingly, it was during the 18th month that the index exceeded a large resistance level, which was then followed by four months of consolidation. In the case of 2012, the S&P 500 rose above a level of around 1,385 in August, while the outbreak lasted four months. In 2016, the outbreak occurred in July, when the index rose above 2,120 and then held the outbreak for four months. The index has now risen above resistance around 2,875 in June and has maintained that level for what will be the fourth month at the current pace until the end of October.
The fifth month
It was then in the fifth month that it finally broke out in a meaningful way and the next significant step started higher. In 2013 it took place in January and 2016 took place in December. In both cases the index never looked back, with approximately 50% and 37% respectively.
Revenues
If that wasn't enough for you, the concordance goes deeper. At the same time, we also saw interest rates fall sharply on the 10-year return of the US Treasury. It was in 2012 and 2016 that the interest rates were lower than the dividend yield of the S&P 500. The same happened again in 2019.
The similarities are creepy. But it is the outcome that may be profitable, and at the same time proves that the bull run for the stock market is by no means over. If history repeats itself, November may prove to be the start of the next major leg higher for the S&P 500.
