What If This Pullback Is Normal?

The Trend Paradox: 

Why Winners Often Keep Winning

Most investors have experienced the same thought:

"I missed it."

A stock has already moved higher. A sector has already rallied. The headlines are everywhere. The chart looks extended. Surely the opportunity is gone.  Yet some of the most influential market research ever published suggests the opposite.

Researchers Narasimhan Jegadeesh and Sheridan Titman studied decades of stock market data and discovered that stocks that had outperformed over the previous 3 to 12 months often continued to outperform over the following 3 to 12 months.

In other words, strength itself carried information.  The challenge is that this idea conflicts with human nature.

Why Our Brains Fight Momentum:

Most of us are conditioned to look for bargains.  We buy things when they're on sale. We negotiate for lower prices. We are taught to seek value.  That mindset works well when shopping for a car or a television.

The stock market is different.  When a stock rises 50%, most investors become uncomfortable. They assume the move is over. They believe the easy money has already been made.  But the chart above tells a different story.

After the stock established itself as a leader, an investor could have looked at the chart after three months and concluded:  "I am too late."

Yet the stock continued significantly higher.  Twelve months later, after an even larger advance, many investors would have said:  "Now I am definitely too late."

Yet the trend continued higher still!

The research suggests that markets often underreact to important information. Institutions build positions gradually. Analysts slowly revise expectations. Investors slowly gain confidence. As a result, trends frequently persist longer than most people expect.

The Pullback Trap:

The second psychological challenge is the normal pullback.  Something we are experiencing now, week of June 8, 2026.  Notice the area on the chart where price retraced toward its 50-day moving average.  Many investors view a pullback as confirmation that the trend is over.

The internal dialogue sounds familiar:  "That was fun while it lasted.", "I knew it was too extended.", "I'll buy it back lower."

Yet in many cases, pullbacks are not signs of failure.  They are signs of a healthy trend pausing to catch its breath.  Strong trends rarely move straight up. They advance, consolidate, shake out weak hands, and then continue.  

What the Research Actually Says:

The study found that stocks demonstrating leadership over the previous 6 to 12 months tended to continue outperforming over the following months.  Importantly, the research does not suggest buying anything that is moving higher.

It suggests identifying true leaders and allowing evidence not emotionto determine when the trend has changed.  The biggest gains in investing often come from a relatively small number of exceptional trends.

Closing Thought:

One of the greatest challenges in investing is accepting that the best opportunities often feel uncomfortable.  The strongest stocks rarely look attractive to the crowd.  They look expensive.  They look extended.  They look late.

And yet history repeatedly shows that strong trends often last far longer than most investors expect.

"It was never my thinking that made the big money for me. It always was my sitting." — Jesse Livermore