The charts below show how market dynamics have changed from the 1990s, to the 2000s and into the 2010s, with V-shaped recoveries becoming dominant and taking the place of consolidation periods.
In the last 414 days, the S&P 500 index has gained about 42% and there are 10 V-shaped recoveries leading to new all-time highs with no consolidation periods longer than a month.
From March 2003 to December 2005, as show on the above chart, the S&P 500 index also gained about 42% but there were two long consolidation periods and just two small V-shaped recoveries leading to new highs between them.
In the period of July 1995 to January 1997, as shown on the above chart, with a comparable net gain of about 42% in S&P 500, there were no V-shaped recoveries and the market rose to new highs only after forming a solid base through long consolidation periods lasting from two months up to five months.
Explanations and comments for the change from the 1990s and 2000s to 2010s include the following:
- The number of funds chasing alpha has increased significantly
- Cenbtral abnks do not want the market to consolidate and act accordingly
- Successive V-shaped recoveries are a sign of a bubble market in the making
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Disclosure: no relevant positions.
Charting program: Amibroker