Today's Investor's Business Daily ran an interesting stat on the current move in the Nasdaq:
"It's a rare feat for the Nasdaq to move up eight or more days in a row. Monday marked the ninth time since the March 2009 market follow-through that the composite has been up eight days in a row or more. Half the time, the streaks ended with the market pulling back or turning choppy. The other half of the time there have been declines of 5% to 19%."
We wanted to dig deeper into this commentary and see exactly how the market performed after each of the 8 prior occurrences. The results are listed below:
Final Day of Streak
|
Days Up in a Row
|
Peak Date
|
Trough Date
|
Peak to Trough
|
7/23/2009
|
12
|
8/4/2009
|
8/17/2009
|
-4.218%
|
9/20/2010
|
9
|
Higher by 10.1% till 11/9/10 peak
|
||
10/29/2010
|
8
|
11/9/2010
|
11/16/2010
|
-5.131%
|
12/10/2010
|
8
|
Higher by 7.7% till 2/18/11 peak
|
||
4/29/2011
|
8
|
5/2/2011
|
6/16/2011
|
-9.976%
|
7/7/2011
|
8
|
7/7/2011
|
10/4/2011
|
-20.153%
|
7/15/2013
|
8
|
8/5/2013
|
8/27/2013
|
-3.276%
|
2/18/2014
|
8
|
3/6/2014
|
4/15/2014
|
-9.723%
|
The data shows that in 6 of the prior 8 instances the market (read: Nasdaq) has been prone to pulling back after achieving an 8th consecutive "up" day. 3 of the pullbacks were rather significant (-9%, -20% and -9%) while the other 3 were minor. There were 2 occasions when the market chose to continue on higher for an extended time.
We then expanded on this theme and examined how the Nasdaq had reacted after each of the 8 prior streaks over various short and intermediate timeframes. The results below show that buying such sustained strength on average has not been nearly as rewarded as buying on any given day.
Nas +5Days
|
Nas +10
|
Nas +20
|
Nas +50
|
|
Buying the Last Day of the Winning Streak
|
-0.136%
|
-0.028%
|
-0.133%
|
1.283%
|
Whole Sample |
0.456% |
0.909% |
1.761% |
4.087% |
This supports the argument that buying strength has been challenging for the last few years of this bull market. A strategy of buying dips and pullbacks has been far more rewarding.
Recent history would suggest a bit of caution is warranted here when looking to add long exposure. Look forward to seeing how it plays out this time.
