How Dow, S&P 500 Stocks Fare After 5-Day Losing Streaks

Dow and S&P 500 stocks have tended to outperform following long losing streaks

by Alex Eppstein

Published on Feb 12, 2016 at 10:00 AM
Updated on Jun 24, 2020 at 10:16 AM

The Dow and S&P 500 Index (SPX) posted their fifth consecutive losses on Thursday, making good on Schaeffer's Senior V.P. of Research Todd Salamone's prediction of more volatility. As we search the gray clouds for a silver lining -- aside from today's strong start for stocks -- one logical place to start is where the Dow and S&P 500 Index have gone following prior five-day (or more) losing streaks.

Schaeffer's Senior Quantitative Analyst Rocky White put together the two charts below. The first looks at how the Dow has performed following these losing streaks, dating back to 2010, while the other provides anytime returns as a standard for comparison. As you can see, the numbers are pretty encouraging. In fact, the Dow's average return outperforms its anytime return during the four time frames listed. The percent positive is more of a mixed bag -- with blue-chip stocks slightly underperforming the next day and week, but ultimately outperforming one and three months out.

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White took the data in the first table, and broke it down by individual streaks. The last time the Dow suffered a similar streak to the current one (August 2015), it stumbled the next day, but went on to post some pretty gaudy returns -- including a three-month gain of 12.3%.

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White repeated the exercise for the broader S&P 500, and the results are similar. The SPX outperformed after week-plus losing streaks throughout the four time frames surveyed. The percent positive is also higher across the board, when comparing post-signal returns to anytime returns. In short, both the Dow and S&P may be flashing bullish signals.

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Looking at individual instances, the last time the SPX had a five-day losing streak was late September, and as you can see below, its subsequent performance was sensational. One month out, the index was up nearly 10%.

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