A Glimmer of Hope for S&P Bulls

How the S&P fares after 40 days without a three-day losing streak

May 9, 2019 at 1:51 PM
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The major stock market indexes have been slaughtered this week, with all signs pointing to increased tariffs on $200 billion in Chinese goods tomorrow. In fact, the S&P 500 Index (SPX) yesterday suffered its third straight loss, marking its longest losing streak in two months. Below, we take a look at how the SPX performs after going at least 40 sessions without a three-day losing streak.

The last time the broad-market barometer went at least 40 trading days without three straight losses was in February. Prior to that, you'd have to go back almost a year, to May 2018, for a streak. The longest streak -- at least since 2010 -- ended in early December 2017, after 80 sessions without three straight down days, according to data from Schaeffer's Senior Quantitative Analyst Rocky White. Since 2010, only the years 2012 and 2015 failed to generate a signal.

SPX signals since 2010

Going back to 1950, there have been just 66 other times the SPX went roughly two months without a three-day losing streak. After these signals, the index has generated stronger-than-expected returns looking six months out.

A week after signals, the S&P 500 was up 0.35%, on average -- more than double its average anytime gain of 0.17%, looking at data since 1950. Likewise, two weeks after a signal, the index was up 0.65%, on average, and higher 60.6% of the time, exceeding its average anytime returns.

A month after signals, the SPX was up a bigger-than-usual 1.03%, on average, with a strong win rate of 71.2%. And three months later, the index was up an average of 4.2% and higher more than three-quarters of the time. That's compared to an average anytime three-month gain of just 2.14%, with a win rate of 65.9%.

SPX after signals vs anytime since 1950

In conclusion, if history is any indicator, the fact that the S&P 500 Index went so long without three consecutive losses could have bullish implications, as these stretches seem to reflect underlying strength. However, the index's trajectory -- in the short term, at least -- is more likely to be determined by this week's trade talks and the potential ramifications of a heightened trade war with China.

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