Nasdaq Could Do This for Just the 4th Time in 4 Years

The Nasdaq Composite is moving out of step with the Dow and S&P, thanks to Netflix earnings

by Andrea Kramer |

Published on Jul 18, 2017 at 2:14 PM

While the Dow and S&P are in the red this afternoon, the tech-rich Nasdaq Composite (COMP) is aiming for its eighth straight win, thanks to well-received Netflix earnings. The COMP hasn't ended eight straight days higher since February 2015. Below, we'll discuss what the stock market might expect if the Nasdaq extends its rally.

According to data from Schaeffer's Senior Quantitative Analyst Rocky White, the COMP has enjoyed rallies of eight days or more just eight times since 2010. However, more than half of those occurred in 2010 and 2011, and the index failed to gain that much momentum in both 2012 and 2016. So, another eight-day rally would be just the fourth for the Nasdaq in four years.

nasdaq win streaks since 2010


If recent history is any indicator, the Nasdaq could cool off soon. On Day 9 -- the day after an eight-day winning streak -- the index has been higher just 25% of the time, looking at data since 2010. Plus, the COMP averages a loss of 0.07%. That's compared to an anytime one-day gain of 0.06%, on average.

In fact, looking out up to three months after an eight-day winning streak, the Nasdaq tends to underperform. For instance, a week after these streaks, the COMP has averaged a return of just 0.1% -- about a third of its average anytime one-week return of 0.29%. One month out, the Nasdaq was up just 0.08%, on average, compared to an anytime one-month gain of 1.23%. Three months after an eight-day rally, the index was higher by 1.24%, on average -- not even half its anytime three-month return of 3.67%.

 

nasdaq after 8-day winning streaks


In conclusion, the near-term trajectory of the Nasdaq will likely depend on several factors. To start, earnings season is in full swing, and hits or misses from any tech heavyweights will have an impact on the COMP. In addition, the Fed will host its July meeting next week, and the central bank's decision could also affect the stock market. As Schaeffer's Senior VP of Research Todd Salamone recently wrote, "The Fed is still the wild card, but dovish actions and commentary amid weak economic data, or a more hawkish tone amid strong economic data, would be supportive of stocks."  
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