Stock Market Signal Blinking for Second Time Since 1999

Apple Inc. (NASDAQ:AAPL) earnings could help the tech-rich Nasdaq Composite (COMP) log an eighth straight record high

May 2, 2017 at 12:47 PM
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Tech stocks have been sending up signals reminiscent of the dot-com boom of the late 1990s. To start, the tech-rich PowerShares QQQ Trust (QQQ) just closed above its upper Bollinger Band for the sixth straight time -- something the exchange-traded fund (ETF) has done just once before, in 1999. Meanwhile, the Nasdaq Composite (COMP) not only extended its monthly winning streak to six -- a feat accomplished just a dozen times in 25 years -- but it just notched a seventh straight record high in intraday trading, something the COMP has done just one other time since 1999.

Nasdaq Streaks of 7 Record Highs

Since the Nasdaq's inception in 1972, there have been just 21 of these signals, according to Schaeffer's Senior Quantitative Analyst Rocky White. Nineteen of those signals happened before the dot-com bubble burst in 2000, with the last signal flashing in February 2017.


Nasdaq after 7 straight record highs


Tech Stocks Could Outperform This Summer

If past is prologue, tech stocks could outperform over the next three months. Following the previous signals, the COMP went on to average a three-month return of 3.37% -- bigger than its anytime three-month return of 2.82%, going back to 1972. Further, while the COMP was higher 52.6% of the time three months after a signal, the average positive is much bigger than usual, at 13.18%, and the average negative is smaller than usual, at 7.52%.

Looking out one week, two weeks, and one month after a signal, the Nasdaq's average returns are also slightly better than usual, and the index is in the black more than average, as indicated by the Percent Positive in the columns below. In fact, the COMP was higher 70% of the time one month after a streak of seven record highs, compared to 60.4% anytime. (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.)


Nasdaq after record high signals


Apple Earnings Could Determine COMP Trajectory

As you can see in the chart above, the Nasdaq tends to average a loss the day after a seven-session string of record highs, down 0.16%, and was positive less than half the time. That's compared to an anytime one-day gain of 0.04%, since 1972. Of course, tomorrow's Nasdaq trajectory will likely depend on the performance of tech titan Apple Inc. (NASDAQ:AAPL), which is slated to report earnings after the close tonight.
 

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