What An All Time High Means

At 14,253.77, the DJIA closed today at an all-time high for the first time since 10/9/07.  That stretch of 1,973 days is the sixth longest the DJIA has ever gone without closing at a new all-time high.  It is also the second time in the last decade that the index has gone more than two years without closing at a new all-time high. 

The last time the DJIA broke out to new all-time highs after an extended drought of not hitting a new high was on October 3, 2006 when the DJIA broke a streak of 2,453 days without making a new all-time high.  A lot of people look back on that period and seem to remember that once the DJIA made the new high, it quickly peaked and then the financial crisis hit.  In reality, though, from the time the DJIA first made an all-time high (ended of shaded area), the rally continued for another year.  It wasn't until the fall of 2007 that the DJIA actually peaked.

Even though we have now seen two periods in the last decade where the DJIA has gone two or more years without closing at an all-time high, these periods of drought are very rare.  Going back to 1900, there have now only been ten periods where the DJIA went two or more years without hitting a new high.  The longest of these droughts occurred from 1929 through 1954 when the index went 9,211 days without a new high.

Earlier today, we sent out a report to clients highlighting the Dow's performance following each of the prior periods where the DJIA made a new all-time high after at least two years of not doing so.  For each period, we highlighted the one, three, six, and twelve month returns as well as the maximum gain and drawdown.  We then compared those returns to the average DJIA return over all one, three, six, and twelve month periods.  

http://www.bespokeinvest.com/thinkbig/2013/3/5/new-all-time-high-for-the-djia.html