The SPY (SPY) gained 27.3% from the end of November ’12 to the end of November ’13. That is one of the best year-over-year gains in years. The next question is what does it mean? Many have been saying all year that ‘up a lot’ surely means we’ll have to come back down even more. Will they finally be right?
Well, it turns out that when the market is up so much one year, it's bullish for the following year.
Going back to 1995, the SPY has gained more than 27% year-over-year 29 times (not including the recent occurrence). Check out the returns. The SPY is higher 12 months later an amazing 29 out of 29 times! Meanwhile, the average return a year later checks in at a very solid 16.6%.
I’ve done a lot of studies this year that have said remain bullish. I must say, this one is the most eye-opening though. I guess a skeptic would say this is due to be wrong eventually. Still, I’d side with history and a market with a lot of good momentum tends to remain strong. Don’t over think things.