The Dow Signal That Could Be Bullish For Stocks

The Dow Jones Industrial Average (DJIA) has been outperforming its index peers in recent weeks, which includes the broader S&P 500 Index (SPX). As of Friday, the Dow's 20-day relative strength versus the S&P stood at 1.017 -- in the 95th percentile over the past 15 years.

Schaeffer's Senior Quantitative Analyst Rocky White dug deeper into this data, looking at historical returns for both indexes following a relative strength reading above 1.015, when the Dow is positive and the S&P 500 is negative. 

The results of the study aren't earth-shattering, but they still point toward possible strength from equities in the near term. As you can see on the charts below, featuring returns after the previous 15 signals since 2003, there have been a number of outsized moves to the upside when the Dow outperforms the SPX. That includes three-month gains of 9.8% and 11.8% for the Dow and SPX, respectively, after the most recent signal in November. Meanwhile, the times the indexes have moved lower following the signal have been comparatively few. 

Below is the data on the overall performance from the Dow and SPX following a signal. From one week out to three months out, both indexes tend to substantially outperform their "anytime" average and median gains, going back to 1950.