There’s an old saying that trees don’t grow to the sky. In other words, there is a natural limit to growth. In the case of a tree, maybe the tree’s structure makes it impossible for nutrients to reach above a certain height. As with so many sayings, this one is often applied to the stock market. For example, companies cannot continue growing earnings at 100% per year forever. There is a natural limit to a company’s growth. The same is true for stock prices. I think of this old saying whenever I see a long streak of up or down… Read More
There’s an old saying that trees don’t grow to the sky. In other words, there is a natural limit to growth. In the case of a tree, maybe the tree’s structure makes it impossible for nutrients to reach above a certain height. As with so many sayings, this one is often applied to the stock market. For example, companies cannot continue growing earnings at 100% per year forever. There is a natural limit to a company’s growth. The same is true for stock prices. I think of this old saying whenever I see a long streak of up or down closes. In the chart below, you can see that the S&P 500 has closed higher for eight weeks in a row. This is not unprecedented. There have been 30 previous instances when a streak lasted at least eight weeks. The longest winning streak on record is only 12 weeks. So, we know the current streak will end. But what does history tell us about this scenario? When is it likely to end? And what happens after that? To help answer that question, I ran some tests to see what’s happened in the past. The results are summarized in the table… Read More