That’s a fancy Wall Street term for what Sir Isaac Newton observed over 300 years ago: For every action, there is an equal and opposite reaction<\/em>.<\/p>\n\n Reversion to the mean, as illustrated above, happens on a regular basis in both uptrends and downtrends. But we haven’t experienced much mean reversion recently…<\/p>\n I should add that markets also spend time in trading ranges, but that’s really just another form of mean reversion – only on a smaller scale<\/em> – as stocks bounce up and down in a wave pattern. Not trending much in either direction.<\/p>\n I bring this up because stocks have enjoyed one heck of an uptrend since April. There have been a few brief mean reversions along the way, including the pullback over last few weeks.<\/p>\n But really… too little mean reversion to mention.<\/p>\n Both Jeff and I are believers in mean reversion, and at some point, perhaps sooner than you think, we will experience it with stocks.<\/p>\n It’s simply the price we must pay for the profitable uptrends.<\/p>\n In fact, a bit of mean reversion for stocks may have already started. And if so, future returns don’t look good.<\/p>\n The Nasdaq 100 Index has been up for the past 7 months straight, gaining over 50% during this remarkably strong uptrend.<\/p>\n\n But the trouble is, such strong momentum historically is most often followed by losses in the months ahead, before the uptrend resumes.<\/p>\n In fact, as shown above, since 1991 Nasdaq has posted consistent average losses up to 3 months after similarly strong uptrends in the past. That’s mean reversion at work.<\/p>\n The worst reversion period has been 3-4 weeks later, with average losses of -3.6% to -4.5% over that period and the Nasdaq 100 declining nearly 80% of the time! <\/p>\n Bottom line<\/em><\/strong>: There’s a memorable line from the film Wall Street<\/em> when a veteran broker takes newbie Bud Fox by the shoulder and says: “Enjoy it while it lasts kid, because it never does<\/em>.” I sincerely hope investors enjoyed the 7-month, 50%+ uptrend in Nasdaq, because now it may be time to pay the price with some mean reversion.<\/p>\n Good investing,<\/p>\n Mike Burnick![\"\"](\"https:\/\/jeffclarktrader.com\/market-minute\/wp-content\/uploads\/2025\/11\/11.13.25-2.png\")
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\nContributing Editor, Market Minute<\/em><\/p>\n