Rare Stock Market Signal Flashing for First Time Since 2013

The Dow just wrapped up a four-week win streak, while the Nasdaq lost two in a row

by Andrea Kramer |

Published on Jun 19, 2017 at 1:59 PM
Updated on Jun 20, 2017 at 12:10 PM

While tech stocks are charging higher today, it's been a rough couple of weeks for the sector. In fact, the Nasdaq Composite (COMP) ended a second straight week in the red -- something that's happened just one other time, in 2016. On the flip side, the Dow Jones Industrial Average (DJIA) just wrapped up its fourth straight weekly advance, and is exploring record heights today. Against this backdrop, we decided to take a look at how the Dow and Nasdaq perform after these relatively rare signals.

Dow/Nasdaq Signal Flashing for First Time Since 2013

The last time the Dow notched a four-week winning streak at the same time the Nasdaq suffered a two-week losing streak was November 2013, according to data from Schaeffer's Senior Quantitative Analyst Rocky White. Prior to that, you'd have to go back to the pre-financial crisis heights of mid-2007, which was the first signal since the dot-com boom of 1999. What's more, the COMP's two-week loss of 2.44% is the steepest of these signals since May 1999, when the tech-rich index suffered a 3.36% drop.

dow nasdaq chart 1

Blue Chips Quietly Outperform After Signals

Following these signals, the Dow has outperformed, especially in the next month. One week after a signal, the blue-chip barometer averaged a gain of 0.4% -- more than double its anytime one-week return since 1972. At the two-week and one-month markers, the DJIA was up an average of 1.20% and 1.58%, respectively, with a stellar positive rate of 85.7%. That's compared to an average two-week and one-month return of 0.31% and 0.63%, respectively, with win rates below 60%.

Three months after a signal, the Dow was up 2.19%, on average -- still better than its anytime three-month return of 2.03%. However, the percent positive is slightly lower after a signal, at 57.1%, compared to 64.2% anytime. Another notable data point is the lower-than-usual standard deviation after a signal, which indicates lower-than-usual volatility in the near term.


dow chart 2 outperformance

Tech Stocks Could Resume Quest for Record Highs

Coincidentally, the Nasdaq also tends to outperform after these signals, even more so than the Dow. One week after a signal, the COMP was up 1.45%, on average -- a whopping seven times its average one-week gain of 0.21%, going back to 1972. The COMP is well on its way to achieving this goal once again, last seen 1.1% higher and pacing for its best session since April.

Two weeks after a signal, the Nasdaq was 1.9% higher, on average, with a 100% win rate. For comparison, the COMP averages a two-week gain of 0.42%, with 58.2% positive, looking at anytime data.

In fact, the Nasdaq's win rate doesn't fall beneath 71% at any of the checkpoints after a signal, with the COMP in the black 85.7% and 71.4% of the time, one and three months later, respectively. The one-month post-signal return is more than double the average, and the index's three-month post-signal gain of 4.27% is much higher than usual. And as with the Dow, the Nasdaq tends to be quieter than usual after these signals, as evidenced by the standard deviation row.

nasdaq chart 3 underperformance

JOIN FREE

Get Schaeffer's Opening View every morning before the bell rings.


MORE | MARKETstories


The Stock That's Tripled On Blockchain Buzz
J.P. Morgan Securities sees increased risk in RMAX stock
Deckers Outdoor Stock Ideal for a Bullish Options Trade
DECK call options are attractively priced at the moment
Fed Rate Hike, Net Neutrality, GOP Tax Bill Highlight Busy Week
All three benchmarks are pacing for weekly wins
Stocks Touch All-Time Highs Ahead of Tax Bill
The Dow is up more than 150 points

Partnercenter


NEW! Explore Schaeffer’s Partners' deals and get connected to top online brokerages with deals tailored exclusively for our readers.  Get answers to your questions regarding transfer fees, commission rates, programs and available discounts related to online trading services.

TRADING SERVICES | FEATUREDproducts


By MG 2016
In March of 2016, I was introduced to Expiration Week Countdown.  The results are better than words!
Options trading made simple.
Schaeffer's Investment Research, Inc. is dedicated to providing subscribers advantages in options trading and investing.  Our independent market research services create profitable opportunities for investors at every level.