The 5% Canary
26 Pages Posted: 25 Apr 2023
Date Written: April 12, 2023
This paper will show that the amount of time taken for the S&P 500 or Dow Jones Industrial Average to decline by 5% from a 52-week high illustrates significant insight to the subsequent trend in price. A study on price history for two major equity indices is conducted to show a relationship between duration of an initial decline and the potential for further material weakness or the opportunity for the index to reverse and move higher. With the examination of an 18th century mathematical challenge, a simple lens into the market is shown and evaluated, resulting in a tool that retail and professional investors may apply to markets in the pursuit of capital preservation and appreciation.
Keywords: stock market, finance, risk management, technical analysis
JEL Classification: G10, G11
Suggested Citation: Suggested Citation