Rare Nasdaq Signal Suggests Summer Cool-Down for Tech Stocks

The Nasdaq Composite (COMP) hasn't been on this long a monthly winning streak since 2013

May 31, 2017 at 3:14 PM
facebook twitter linkedin


It's been a huge year for tech stocks, with many notables exploring record highs. In fact, the tech-rich Nasdaq Composite (COMP) just touched an all-time peak earlier today, and is on pace to wrap up its seventh straight monthly gain -- a feat not accomplished since early 2013. Before that, you'd have to go back to the market bottom, with a seven-month rally kicking off in March 2009. Below, we take a look at how the Nasdaq performs after these long stretches into the black.

Since 1978, there have been nine seven-month winning streaks for the Nasdaq -- what we'll call a "signal" -- the longest ending in February 1983, at 11 months. A year after the last seven-month rally, which ended in May 2013, the Nasdaq was up another 22.76%, according to data from Schaeffer's Senior Quantitative Analyst Rocky White. In fact, the Nasdaq has been lower at the one-year benchmark just one time -- after the aforementioned 1983 signal -- but hasn't moved higher for eight straight months since 1995, with the last three winning streaks capped at seven.

Nasdaq 7 month winning streaks


Considering the recent hiatus on eight-or-more months of consecutive gains, it's no surprise to find the Nasdaq was positive just 44.4% of the time one month after a seven-month winning streak. That's compared to an anytime one-month win rate of 60.2%, going back to 1978. However, the COMP's average post-signal return of 1.06% is in line with its average anytime return of 1.07%.

It's also not surprising to find that the Nasdaq was higher 88.9% of the time one year after a seven-month losing streak, with that 1983 signal the anomaly. Still, the COMP's average one-year return after a seven-month winning streak stands at 10.79%, which is lower than its average anytime one-year return of 13.4%.

In the intermediate term, though, the Nasdaq tends to outperform following these lengthy runs higher. Three months after a seven-month winning streak, the index was up 4.18%, on average, and higher 77.8% of the time. That's compared to an average three-month return of 3.30%, and a win rate of 65.7%, going back to 1978. Likewise, the COMP has averaged a six-month gain of 7.59% after seven-month winning streaks, and was higher 77.8% of the time -- much better than usual.

Nasdaq win streak signals tech stocks


In conclusion, if recent history repeats, the Nasdaq could take a short-term breather this summer -- though support at 6,000 wouldn't be a surprise. However, the tech rally could resume in the second half of 2017, and amid lower-than-usual volatility, as evidenced by the smaller-than-normal Standard Deviation across the board after seven-month surges.

Trader: Sell These 8 Stocks in 2021

1633101108

 




 
Special Offers from Schaeffer's Trading Partners