The “mungofitch 99-day rule” is a historical model developed by the eponymous mungofitch which shows that IF the S&P 500 does not make a new high in 99 trading days it is likely to fall further…sometimes much further. By selling all stocks and going to cash, the nasty bottoms are cut off these drops. This model recommends going back into stocks after 99 trading days of making new highs since that usually indicates a durable bull market. The waiting period cuts out dead cat bounces and head fakes in a bear market.
I wish I had the link to mungofitch’s convincing chart.
The SPX made its last high on 1/3/2022. Today is day 99. It’s now down 17% from the high. That’s not even a bear market. It could drop much further.
Does it make sense to go to all cash? Maybe yes, maybe no. It depends. It might make sense to do tax-loss harvesting. It might make sense to hold onto stocks that will probably regain their prices after the coming recession…although that might take a long time.
Take a careful look at how long past recessions took to to bottom and return. The SPX peaked in January 1973 (at 116) and didn’t top that until August 1980 (at 122). That was a similar time to now – an inflationary time with the Fed raising interest rates.
Valuations based on the 2020-2021 unprecedented monetary and fiscal stimulus may never return because these extraordinary actions won’t happen again. That would be similar to the dot-com bubble burst.
Stocks that pay dividends can be held indefinitely. They don’t have to be sold (potentially into a bear market) to release the value.
Thanks for keeping track of this and letting us know.
I’m considering selling the other half of QQQ (sold the first half today). Maybe even VOO.
I will not sell FPI (farmland, its been a winner), MOO (agricultural ETF, during a time of food inflation), VYM (large dividend stocks), VTV (large value stocks), or VDC (consumer staples, doing well during inflation).
Does it make sense to go to all cash? Maybe yes, maybe no. It depends. It might make sense to do tax-loss harvesting. It might make sense to hold onto stocks that will probably regain their prices after the coming recession…although that might take a long time.
Oh boy, do I wish I could tax-loss harvest. But if you’ve been LTB&H for 30+ years, the tax loss opportunities are long gone, and all you have left is the unrealized capital gains.
rainphakir, thank you for posting these links. These appear to be short-term charts. The original mungofitch chart covered many decades, so it was different.
Watch the upper band.
If the most recent change in direction was up, then “bull-ish” market.
If the most recent change in direction was down, then “not bull-ish”.
I don’t know what made me revisit this. Probably because for a few months now I keep thinking “this was the bottom” and it never was. The indicator fired “sell” on May 25 at $433.07 on the VOO. I think it’s fired 3 more times, most recently Sept 12 at $395.04, where the 99D high still stands. Right now the VOO is at $364, so another 8% up before we can set a new 99D High. One positive? My balance today is nearly equal to May 25. So whew.
If I remember from my many years on the MI board, the 99-day rule was devised for market tops but not market bottoms. Markets usually roll over slowly from tops while major bottoms are V-shaped.
I’ll say that a third time, and nice to see desertdave. I have some cash, sold most of the cyclical industrials some time ago. Keeping the rest for the divis they throw off.
However, to date, the only thing he’s posted is an entry explaining that his “major bottom detector” fired on Sep. 29.
This signal triggered on Sept 29, but not Sept 30, so (to the extent that it has any value) the US market is a buy now. The market might tumble some more, but it’s usually quite a bit higher a year after such a signal. If you were to buy after the first “no signal” day after a signal day, on average the S&P 500 is 12% higher 6 months later, 21% higher a year later, and 36% higher two years later. Not adjusted for dividends or inflation.
It’s far from perfect, but if I had some short term short market positions, I’d close them.
Like many others, I sure wish he was still posting on the Berkshire board. But I hope to hear from him via his website from time to time.
No, I wouldn’t ‘t agree with “similar”, I might allow “vaguely similar” or some other modifier. Using “1973” as example is like saying “1929” every time there’s a bear market.
In 1973 there were cars lined around the block waiting for an insufficient ration of gas. There were national regulations which allowed your car in line only on certain days. Mortgage rates were on their way to 15%, even 18%. Wage and Price Controls were not just airy discussion topics, they had actually been implemented. The US was plunging into recession, with unemployment nearing 9%. The country likewise was fatigued by the biggest political scandal in US history and a war which seemed endless. And disco was popular.
Now that I think about it, even “vaguely similar” seems a bit too strong. I’ll work on it and get back to you.
Do we not buy at the bottom? While those around us lose their heads?
Frankly the head losing is long past. This is not a crisis. Does the 99 day rule only work with a crisis in the markets and economy?
This is a reversion to the norm. That was not a bottom. This is not a chance to get the new trend.
What could go wrong is not a crisis. Just useful to the reversion to the norm. Higher interest rates and lower valuations are the norm. This includes an appreciated USD and lower input costs. We are not there yet. The FED pretty much told us that today.
We are not there yet. The FED pretty much told us that today.
But the stock market thought it was just swell! They say everything is reflected and accounted for in the price. I would also add “and the trend.”
I’m still looking at a possible fall from here but really, I mean really, how far? I cannot see any “bottom falling out.” Just maybe a period of “bottom forming” which would include some ups and downs from here, but if one is waiting for a big golden investing moment, I don’t think it’s going to happen. It’s here.
@DrBob2, are you counting from the October low? I think that’s not right since the SPX made new highs in Dec 2022 which then failed. Shouldn’t the count be from the new low in January 2023? This isn’t yet 99 trading days from New Year’s Day 2023.
Since New Year’s Day 2022, the SPX has followed a pattern of lower highs and lower lows. (Although the 1/1/23 low wasn’t a lower low.)
I’m not convinced that the market has decisively broken out of its slump. The Fed is slowing, but not stopping, its interest rate raises. And the Index of Leading Economic Indicators is falling, showing a probable recession later in 2023.
I’m remaining patient. You may disagree and feel that this is the bottom, like @FCorelli – that is what makes markets.
