The S&P Hasn't Been This Quiet in 2 Years

The SPX's streak of 27 sessions without a move of 1% is historically bullish

Aug 17, 2016 at 1:47 PM
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The S&P 500 Index (SPX) has now gone 27 trading days without making a 1% move in either direction -- and is on pace for No. 28. The last time the broad-market index made a relatively sharper move was July 8, when it gained 1.5% -- thought it came somewhat close on Aug. 5, with a 0.9% win. Below, we'll explore the historical frequency of these low-volatility streaks, as well as their implications for future stock returns.

According to the chart below, courtesy of Schaeffer's Senior Quantitative Analyst Rocky White, we're currently in the 13th streak of 27 straight sessions (or more) with narrow moves (<1%), dating back to 1990. As you can see, these streaks can get very long, stretching to 95 sessions in August 1995 -- and, going back to 1963, there was a 184-day narrow-move streak.

spx narrow range streaks since 1990 august 17

Per the chart above, the last time we saw a streak of this kind was nearly two years ago, in September 2014. This streak extended even further than 27 sessions, eventually ending after 32 trading days. What happened afterward? White's chart below shows pretty negative results, especially at the one-month mark, when the SPX was down nearly 7% -- easily wiping out the 3.6% gain posted during the streak.

spx after narrow range streaks since 1990 august 17

However, the post-streak sell-off from 2014 represents an aberration, historically speaking. According to the next chart, when looking back to 1990, the SPX is higher two-thirds of the time one month after narrow-move streaks end, slightly better than the anytime percent positive (62.2%). In fact, the post-streak percent positive and average return numbers are higher across the board, while standard deviation is lower across the board. In other words, if past is prologue, we could be heading into a low-volatility environment in which the SPX continues to trek higher.

spx after narrow range streaks summary since 1990 august 17

What happens when you extend the data past 1990? The chart below goes back to 1944, the first time the S&P 500 Index (SPX) strung together a streak of 27 sessions without a 1% move. As with the charts above, volatility remains lower than usual. However, the post-streak returns are actually worse than the anytime returns. Therefore, bulls should hope the more recent history dictates where the SPX goes from here.

spx after narrow range streaks summary since 1944 august 17

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