An Unhealthy Obsession With All-Time Highs

The obsession with all-time highs is making us all a little dumber these days…

As we head into today’s trading session, the S&P 500 Index is just 0.26% below its all-time highs. After fighting back from a January swoon, stocks are on track to potentially break free once again this week…

“Not that that’s anything new,” we’re reminded by my trading buddy, Jonas Elmerraji. “Since 1982, almost half of the S&P 500′s closes have been within 5% of all-time highs. That’s a staggering statistic, especially considering the fact that it includes some major market corrections along the way.”

And it appears the bear market bias is still very much alive and well — even among professional money managers…

“Most investors off the street have a lot of trouble computing the fact that stocks spend most of their time near highs – even the professionals do. Not long ago, I saw a note from a very prominent and well-respected hedge fund manager on Twitter saying that ‘all major crashes happen after new highs’ – so the fact that the S&P was breaking record levels in 2013 meant that his crash scenario looked more likely,” Jonas explains. “That’s one of the stupidest things I’ve ever read.”

S&P 500, June 2013-Present

“It’s like saying that most shark attacks happen in the water,” Jonas continues. “Of course they do – I’m no marine biologist, but it’s my understanding that’s where sharks spend most of their time. Going swimming doesn’t make you likely to get bitten…

“Likewise, since the market spends most of its time near highs, any market event (be it a crash, a snow day, or even higher new highs) is likely to happen after new highs get taken out.”

Your top goal this week is to avoid the collective stupidity of the all-time highs crowd and trade what you see…

Regards,

Greg Guenthner
for The Daily Reckoning

P.S. In this morning’s issue of The Rude Awakening, I gave my readers a chance to access Jonas’s “watchlist” – a list of the best opportunities and investment trends he sees in the market right now. This is just one way Rude readers have a leg-up on the competition. Every issue is packed full of my own analysis and several opportunities to gain access to other top-notch research. Don’t wait another minute. Sign up for the free Rude Awakening email edition, right here, to get started.