Analyzing historical stock market patterns, points to a possible near term correction.
“From Worst to First in the New Bull” phenomenon: history indicates that stocks that decline significantly in a market correction phase tend to outperform the rest of the market in the next upturn. Cases in point:
1. In 1990: health care led the market in the new bull run
2. In 2003: technology led the market in the new bull run
3. Since March 9, 2009 lows: financial stocks, which declined precipitously in 2008, have appreciated more than 130%. However, technology and healthcare are taking leadership now.
“Small Caps Lead the New Bull” phenomenon: history indicates: that small-capitalization stocks fare better at the start of bull markets. Since March 9, 2009 lows: Small capitalization stocks gained 76% vs. 52% in current bull market. However, since October, 2009 large caps are now outperforming small caps by 4%.
“S&P 500 Dividend Aristocrats Payers” phenomenon: in the second years of the last two bull markets, dividend paying stocks have gained 6% more than the S&P 500.
“The 10% correction New Bull Market pattern”: Since 1932, every bull market has had at least one 10 percent correction before peaking.
“The 10 month New Market pattern”: the typical bull market declines by 10 percent at some point within its first 10 months.
Source(s): NYT, S&P