Thursday, May 7, 2015

Nasdaq - Post Winning Streak Update #3 (50 Days Later)

As promised, we've kept a close eye on the Nasdaq's performance since it completed a rather significant winning streak in late February.  If you recall, the index posted a run of 10 consecutive up days with the last day coming on February 24th.  Since then, we've written updates at Day 15, Day 30 and wanted to circle back one last time after Day 50 (yesterday) to see where we stood.

As mentioned in the original post, since 2009, this was the Nasdaq's 9th instance of an 8 day or longer winning streak.  The index's short and intermediate-term performance after those streaks suggested that we were likely to see some immediate weakness (5, 10, 20 days out) followed by very mild gains further out (50 days).  Much weaker performance than if you just bought the index on any given day during this 6 year bull.

As we study the results of this most recent streak, we see a bit more dispersion but the general theme has remained: weak to flat action over the next several days and weeks.

-Day 5 (March 3rd) - Nasdaq closed at 4,979.9 for a gain of 0.237%

-Day 10 (March 10th) - Nasdaq closed at 4,859.79 for a loss of -2.181%

-Day 20 (March 24th) - Nasdaq closed at 4,994.73 for a gain of 0.53%

-Day 30 (April 8th) - Nasdaq closed at 4,950.82 for a loss of -0.35%

Looking at yesterday's close, things have deviated just a bit from historical precedent.  The index closed May 6th at 4,919.64.  This is nearly a 1% loss from the February 24th close of 4,968.12.  So instead of the anticipated small gain after 50 days the Nasdaq has actually fallen 100 basis points.

While the Nasdaq's lack of returns over these time periods can't be attributed to the predictive powers to this or any other study, it's interesting to know that after the index goes on such runs of momentum it's common for it to take a breather for a few weeks/months.  And that's indeed what it's done here.

Ryan Worch is the Managing Director of Worch Capital LLC. Worch Capital LLC is the general partner of a long/short equity strategy that operates with a directional bias and while emphasizing capital preservation at all times.

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