What the index's win streak could mean for blue chips in 2018
The Dow Jones Industrial Average (DJIA) yesterday wrapped up November with a healthy 3.8% gain, marking the eighth straight monthly win for the blue-chip index. In fact, the Dow is in the throes of its longest monthly winning streak in 22 years. Below, we take a look at how the DJIA tends to perform after these extremely rare rallies, and what history could tell us about the stock market in 2018.
There have been just seven other eight-month win streaks in the Dow's history, with the last occurring in 1995. Prior to that, you'd have to go back 56 years, to 1961, for a similar stretch. The first eight-month streak was notched in April 1922, and there was just one such rally apiece in the two subsequent decades. The 1950s was the only decade with two eight-month win streaks, according to Schaeffer's Senior Quantitative Analyst Rocky White.
While the sample size is small, the DJIA's performance after these stretches is encouraging. The index averaged a one-month gain of 1.47%, and extended its win streak to a ninth month 71% of the time. That's more than double the average anytime one-month return of 0.63%, with a win rate of 59%, looking at data since 1922.
What's more, the next three-to-six months could be stellar for the blue-chip index, if past is prologue. The Dow was higher 100% of the time at both markers following previous eight-month win streaks, compared to average anytime win rates of 63% and 66%, respectively. Plus, the DJIA was up an average of 7.23% and 10.21% at the respective three- and six-month points -- blowing its average anytime returns of 1.92% and 3.83% out of the water!
One year after an eight-month win streak, the DJIA was 13.99% higher, on average -- again, nearly twice the norm. The index was in the black 86% of the time a year later, compared to an anytime win rate of 68%.
In conclusion, if history is any indicator, the Dow's recent quest for record highs should continue well into 2018. And the same can be said for the S&P 500 Index (SPX), which just wrapped up its best monthly win streak in 10 years. For traders looking for a potential near-term blue-chip winner, this big-cap tech stock tends to outperform in the month of December.