Recently, the stock market has been experiencing its highest prices ever. But what has happened in the past after the market made new highs?
According to our study on the S&P 500, the stock market on the following day has a higher chance of bullishness. The following week witnessed a similar result, but to a much lesser extent. The stock market on the month following new highs had a significantly lower probability to be bullish and much lower daily return.
The fact that stocks continued the bullish run in the short term renders short-term contrarian trades with no edge, while bearish trades utilizing options get larger benefits in shorting stocks at new highs due to their higher POP and longer timeframe.