Nasdaq Hasn't Done This in 4 Years

The IXIC tends to cool off after seven-day winning streaks

Mar 13, 2018 at 10:14 AM
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The Nasdaq Composite (IXIC) just wrapped up a seven-day winning streak, marking its longest since October. What's more, during this latest win streak, the Nasdaq has already gained 5.7% -- the first time it's generated a gain of more than 5% in seven consecutive up days since February 2014. However, if recent history is any indicator, the tech-rich index could be due to cool off soon.

There were five winning streaks of at least seven days for the Nasdaq in 2017, compared to only one in each of 2016, 2015, 2014, and 2013. Prior to that, you'd have to go back to July 2011, when the IXIC surged 6.83% in seven sessions, according to Schaeffer's Senior Quantitative Analyst Rocky White. 

nasdaq last 7day win streaks

It's also interesting that after the two biggest seven-day surges on the list above -- 2014 and 2011 -- the Nasdaq was in the red three months out. That theme of intermediate-term underperformance is further echoed when looking at IXIC returns after seven-day winning streaks since 2010, of which there were 16.

The index was higher than usual on Day 8, averaging a gain of 0.22% and in the black 62.5% of the time. That's compared to an average anytime one-day return of 0.06%, with a win rate of 56.1%. However, one and two weeks out, the IXIC's average returns of 0.03% and 0.02%, respectively, were much smaller than usual.

One month later, the Nasdaq was up just 0.18%, on average, compared to 1.29% anytime. Three months after a seven-session winning streak, the IXIC's average return of 2.76% pales in comparison to its average anytime gain of 3.86%, though the index's win rate of 81.3% was higher than usual.

nasdaq after 7day win streaks since 2010

In conclusion, if past is prologue, the Nasdaq could cool its proverbial jets soon, as it tends to generate slimmer-than-usual returns shortly after a seven-day win streak. On the other hand, the index's recent outperformance vs. the Dow could suggest the rally to record highs continues well into April.

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