What This Rare Nasdaq Feat Means for Tech Stocks

The tech-rich Nasdaq Composite (COMP) could be headed even higher, if history is any indicator

May 1, 2017 at 1:30 PM
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The Nasdaq Composite (COMP) is just off its sixth straight record high, and the tech-focused PowerShares QQQ Trust (QQQ) sent up a signal that's flashed just four other times in history, including just before the dot-com bubble burst. However, while the surge in tech stocks has made headlines in recent weeks, the Nasdaq has been churning higher for months, and last week notched a sixth straight monthly gain. Against this backdrop, we decided to take a look at how the COMP tends to perform after this relatively rare feat.

Nasdaq Signal Sounded Just 4 Times Since 2000

Since the Nasdaq's inception in 1972, there have been just 12 of these signals, according to Schaeffer's Senior Quantitative Analyst Rocky White. It's been four years since the COMP last scored a six-month winning streak; prior to that, you'd have to go back to mid-2009, when the stock market was just off what we now know as the March 2009 bottom. In both of those instances, as well as the streak in 2003, the Nasdaq went on to a seventh straight monthly advance. In fact, there have been just two times that a monthly winning streak of this magnitude stopped at the six-month marker: in 1993, and in 1975 -- the very first signal.

Nasdaq after 6 month win streaks

Is a Low-Volatility Churn Higher Ahead?

Following the previous 11 signals, the COMP outperformed amid lower-than-usual volatility (evidenced by Standard Deviation in the chart below). One month after a signal, the Nasdaq gained 3.22%, on average -- roughly three times its average anytime one-month return of 1.07%, since 1975. (And for what it's worth, stocks also tend to perform well in the month of May during the first year of a presidential cycle.) The COMP also racked up bigger-than-usual gains looking three and six months after a signal.

Going one year out, however, the COMP was up 12.27%, on average, following a six-month winning streak, compared to an average one-year gain of 13.46%, since 1975. However, the COMP was higher at this benchmark 81.8% of the time after a signal, compared to 78.2% anytime, and after its last winning streak in 2013, the index went on to add 23.61% the subsequent year. 

Nasdaq after six month gains

Nasdaq Could Move On Tech Earnings

Looking ahead, the Nasdaq's short-term trajectory will likely be impacted by the upcoming slate of big-cap tech earnings. Apple Inc. (NASDAQ:AAPL) will lead the charge with its quarterly earnings release tomorrow night, and Facebook Inc (NASDAQ:FB) is just one of several other companies slated to report this week. Should the Nasdaq notch a seventh straight record high tomorrow, it would mark just the second such instance since 1999.

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