What Happens After a Six-Week S&P Win Streak?

The Dow and S&P 500 tend to outperform in the aftermath of a six-week win streak

Nov 11, 2015 at 1:47 PM
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It's not been a particularly good week for U.S. markets, and things aren't any better today. However, it's worth noting that the major benchmarks -- specifically, the blue chip Dow Jones Industrial Average (DJIA), the broader S&P 500 Index (SPX), and the tech-heavy Nasdaq Composite (COMP) -- are each coming off a sixth consecutive week of gains.

With that in mind, Schaeffer's Senior Quantitative Analyst Rocky White ran the numbers to determine what history suggests about market performance following similar hot streaks. From the looks of it, this week's weakness represents a break from the trend, as six-week win streaks tend to be a bullish signal in the short term.

Below, you'll see two charts on the Dow -- the first showing its post-signal performance across four time frames, and the second showing its anytime performance. As you can see, the bellwether has averaged a 0.2% gain in the week after its past 20 six-week win streaks, with 60% positive -- each in line with its anytime performance. Going out to eight weeks, the Dow's post-signal outperformance becomes clear. Specifically, the index's average advance of 2.1% outstrips the anytime gain of 1.6%, and its percent positive of 75% tops the typical 64%.

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Turning to the SPX, the post-signal outperformance is consistent across all time frames. The difference in two-week returns is especially pronounced, as the benchmark averages a 0.7% gain versus an anytime uptick of less than 0.4%. It's also worth noting that following six-week win streaks, the standard deviation on both the Dow and S&P is lower than usual -- as investors grow complacent amid a bullish market, yielding less volatility.

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That lower-volatility trend mostly holds up on the COMP, until you get out to eight weeks, where the post-signal standard deviation of 10.7% eclipses the average of 9.1%. In terms of performance, the Nasdaq provides a more mixed picture than its peers. Specifically, the COMP's average return in the next- and two-week windows is better than its anytime returns, but worse in the four- and eight-week time frames.

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