Dow Signal Could Flash for Second Time Ever

The Dow Jones Industrial Average (DJIA) finished Wednesday at an all-time closing high for the ninth consecutive day, and it looks like the streak could be extended to 10 today. If so, it would mark just the second time since 1900 the large-cap index has seen a double-digit streak of record-high closes. In fact, the Dow has seen a nine-day streak on just four previous occasions, with the most recent being over 30 years ago. The tables below, compiled by Schaeffer's Senior Quantitative Analyst Rocky White, show the Dow's returns in the months following these prior record runs.

As you can see, the 1987 record-high streak, which went on to last 12 days, gave by far the strongest returns at every interval out to three months, suggesting it may bode well if our current streak continues to a 10th day or beyond. But what does this signal really mean for the Dow? White put together the tables below, comparing the blue-chip index's post record-high streak returns to its anytime returns, going back to 1929.

Next-day returns aside, the Dow has seen higher-than-normal average returns out to one month after a streak of nine or more consecutive closing highs. In fact, at the one-month mark, the index was positive 100% of the time, with an average gain of nearly 3%, compared to its anytime one-month return of 0.5%, positive 58.8% of the time. By the three-month point, however, this strength seems to dissolve, with the post-streak Dow gaining 1.4% -- less than the 1.6% seen by the index in any three month period.

Simply put, we might expect the Dow Jones Industrial Average to continue showing strength in the near term, but that's no guarantee of long-term outperformance. Of course, it's important to note that a sample size of four -- which gave rather diverse returns, per the first table above -- is hardly enough to identify a trend to hang your hat on.

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