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”.
