The strength and resilience of the market's advance over the past 2 months has surprised numerous observers. But is it sustainable?
Consider the following: From September 21st to November 27th (intraday lows to highs), the Nasdaq gained a blistering 40+%; Both the Dow and the S&P500 were up around 23%.
Based upon historical comparisons, this ascent shouldn't continue for much longer. But if the Indexes were to continue gaining at
recent speeds -- an admittedly unlikely scenario -- how long would it be before they hit their prior highs?
At the growth rates of the past eight weeks, the Nasdaq would revisit its former highs by mid May 2002, the Dow would reach its old highs sometime in the beginning of February, and the S&P by mid March.
Sustainable Rate of Advance ?
| Index |
September Lows |
November Highs |
Gain % |
2000 Highs |
Hypothetical Revisit of Prior Highs |
| Dow Jones Industrials |
8,062 |
9,992 |
23.93% |
11,750 |
February 2002 |
| S&P 500 |
944 |
1,163 |
23.19% |
1,553 |
March 2002 |
| Nasdaq Comp |
1,387 |
1,965 |
41.67% |
5,132 |
May 2002 |
| NYSE Comp |
495 |
590 |
19.19% |
681 |
March 2002 |
| Russell 2000 |
374 |
466 |
24.59% |
614 |
March 2002 |
Its all but impossible to imagine that occurring. A sideways, base building period is a more likely scenario than a continuation of the recent advances. If the markets do manage to break out of the present trading range -- above 10,200 on the Dow, and 2100 on the Nasdaq -- I would be looking for a period of extended, range bound trading, primarily characterized by sector rotation and "backing and filling."
--Barry Ritholtz
December 2, 2001
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