Should the Dow's Win Streak Be a Concern?

The Dow tends to underperform following four- and five-day win streaks

by Alex Eppstein

Published on Oct 8, 2015 at 2:23 PM

The Dow has been struggling to pick a direction all day, but right now, it looks poised for a small advance -- which would extend its win streak to five. Of course, the market's reaction to the recently released Fed minutes will go a long way toward determining whether or not those gains hold.

But what does history have to say about the Dow's performance following a four-day stretch of victories? I enlisted the help of Schaeffer's Senior Quantitative Analyst Rocky White to help answer that question, and he provided the charts below -- which compare post-streak performance against anytime performance, dating back to 2009. Suffice it to say, fifth-day returns have not been impressive. On average, after a four-session win streak, the Dow edges 0.05% lower -- versus an any day return of 0.06%. Even going out two weeks, the benchmark's 0.1% post-streak gain pales in comparison to the 0.6% return during a typical two-week stretch.

151008dow1

The next table shows the Dow's performance after the last 20 four-day win streaks, with the most recent transpiring in mid-July. As you can see, the next-day return has been negative following each of the last four occurrences. In other words, if history is our guide, we should expect a modest loss today.

151008dow2

So, what happens if the Dow does muster a fifth straight victory today? The charts below again suggest some slight underperformance over the short term. While next-day returns are relatively equal, the one- and two-week returns following a five-day win streak -- negative 0.04% and positive 0.06%, respectively -- trail the anytime returns over the same time frames (0.3% and 0.6%).

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