The Silver Lining to the S&P, Nasdaq Losing Streaks

The SPX and COMP are in the midst of six-session losing streaks, but history suggests this underperformance could give way to gains

Nov 2, 2016 at 10:39 AM
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Yesterday, the S&P 500 Index (SPX) and Nasdaq Composite (COMP) both notched a sixth consecutive daily loss amid ongoing pre-election jitters. What might this mean for the indexes going forward? We'll take a closer look below.

Schaeffer's Senior Quantitative Analyst Rocky White created the chart below, which accounts for all SPX losing streaks of at least six sessions, dating back to 1990. As you can see, the longest cold streaks over the past 26 years have lasted eight trading days. Going back further, though, the longest-ever losing streak was 12 sessions (May 1966).

spx losing streaks november 2

The most recent time the SPX went cold for this long was last August, and its losses over that period were a much sharper 11.2% (compared to a current loss of just 1.8%, which is historically pretty tame). Fortunately for bulls, the rebound was strong. The session after that sixth down day, the broad-market benchmark jumped 3.9%. One month out, the index had given up a portion of those gains, but was still up 3.5%. The two charts below reveal that outperformance is the norm following SPX losing streaks:

spx losing streaks summary november 2

On average, after the sixth down day, the SPX typically returns over 0.4% on the next session, compared to an average anytime return of 0.03%. What's more, the percentage positive is 75%, compared to an anytime figure of 53.3%. One month out, the S&P's average advance is an even more impressive 2.3%, with 70% positive. By comparison, the index usually gains only 0.7% over a single-month period, and the percentage positive is a more modest 61.9%.

If we repeat the same exercise for the COMP, the results are very similar. However, one key difference is the much higher frequency of losing streaks on the tech-heavy index, with 39 returns versus 20 for the S&P 500. Again, the longest streak since 1990 is eight trading days, but the lengthiest streak ever is double that, at 16 sessions (February 1984).

nasdaq losing streaks november 2

Based on the data above, the current cold streak is the COMP's third of 2016, and both of the prior ones lasted a little longer. January's pullback was particularly rough, with the index down another 8.7% one month out. Historically, however, the Nasdaq has tended to snap back more quickly than it has this year, per the numbers below:

nasdaq losing streaks summary november 2

As you can see, the day after a six-session losing streak, the COMP has been positive over 56% of the time, with an average gain of 0.2% -- besting the anytime figures of 54.7% and 0.05%, respectively. The outperformance tends to persist for a couple weeks, but by a month, that trend wanes and the anytime numbers are actually superior.

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