The Dow is on the brink of a sixth consecutive weekly winning streak
The Dow has been making a strong push toward the 20,000 level, resulting in
dangerously high levels of optimism. Specifically, the blue-chip index has soared roughly 11% relative to its most recent bottom on Friday, Nov. 4. In fact, the Dow is currently on track for its sixth consecutive weekly advance -- a milestone that's been achieved just 22 times over the past 50 years.
Below, Schaeffer's Senior Quantitative Analyst Rocky White breaks down the implications of six-week win streaks on the Dow. The first chart provides the post-streak returns over different time frames, while the second offers the anytime data. White looked back to 1972 -- the year in which the benchmark first achieved the six-week streak.
As you can see, the post-signal returns are a mixed bag, especially short term. The three-month data, however, suggests the Dow's performance does tend to slow relative to its anytime returns. While the index has gained 1.2%, on average, after its six-week win streaks -- and been positive 54.5% of the time -- both figures are well below their anytime counterparts of 2% and 63.8%, respectively.
However, one trend that holds across all time periods is decreased volatility after the signal, as measured by standard deviation. In other words, it seems that the Dow, after a rapid run higher, tends to calm down considerably afterward -- as the stock market consolidates its gains.
Below, White breaks down the 22 previous six-week signals even further. Bulls should be praying against a repeat of the most recent occurrence. Last November, following a six-week win streak, the Dow fell off precipitously, losing 9.5% in the ensuing three months.
Let us help you profit from market volatility. Target big gains in short order with a 30-day trial of Schaeffer's Weekly Volatility Trader!