Rare Dow Feat a Bullish Sign for Stocks

Dow Jones Industrial Average (DJIA) strength could beget strength, if history is any indicator

Andrea Kramer
Apr 26, 2017 at 3:29 PM
facebook twitter linkedin


On Monday, the Dow Jones Industrial Average (DJIA) kicked off the week with a relief rally, soaring more than 200 points in the wake of the French presidential election. On Tuesday, it was a near-repeat performance for the blue-chip index, which gained another 200-plus points on solid corporate earnings and optimism ahead of President Trump's tax plan. It was the first back-to-back gains of 200 points or more for the Dow since the U.S. presidential election, and if recent history is any indicator, the DJIA could be headed even higher in the short term.

There have been nine of these signals since late 2014; prior to that, you'd have to go back to the days before the market bottom of 2009, according to data from Schaeffer's Senior Quantitative Analyst Rocky White. There were three signals in 2016 alone, and following the two-day gains just after the "Brexit" and in mid-February, the Dow went on to notch a third straight rally of more than 200 points.

DJIA after two 200 point gains



On average, the Dow has added 0.35% the day after these feats, ending higher 75% of the time. That's compared to the Dow's anytime one-day gain of just 0.03%, with a 52.2% win rate, going back to 2014. While another triple-digit gain seems unlikely today, the Dow is higher, at last check, above the key 21,000 level.

Going out further, the Dow has generally been about twice as strong as usual following these signals. One week after big back-to-back gains, the Dow averaged a gain of 0.31%, compared to an anytime gain of 0.15%, and was higher 75% of the time. The trend continues looking two weeks out, with the DJIA averaging a post-signal return of 0.76%, compared to an anytime two-week gain of 0.3%. One month after a signal, the Dow was 1.73% higher, on average, compared to its average one-month return of 0.67%.


Dow signals big gains



A Schaeffer's exclusive!

The Expert's Guide

Access your FREE trading earnings guide for Q3 before it's too late!


  
 

Partnercenter