U.S. stocks ended February with one of the rarest streaks we’ve ever seen…
The Dow Jones Industrial Average moved higher for 12 consecutive trading days.
[ad#Google Adsense 336×280-IA]That has only happened two other times since 1950… And the last time was 30 years ago.
This kind of streak spooks most investors…
“What goes up, must come down,” they think… So after 12 days of rising stocks, people assume we are due for down days.
But is that true? Is there any basis to that thought?
Let’s find out…
The Dow’s recent hot streak was impressive… and nearly unprecedented. It has only happened twice in the past 67 years.
The most recent occurrence was in 1987, and the other was in 1970.
What’s interesting to me is what happens after these kinds of streaks…
Stocks tend to continue higher for around six months… and then they move lower.
This happened in both 1987 and 1970. Stocks rose 15%-plus in five to seven months and then fell… eventually going negative in both cases.
The problem, of course, is that we only have two examples. It’s hard to draw conclusions from something that has only happened twice.
To solve that problem, I looked at every instance where the Dow rose for 10 straight days. That has happened 20 times since 1950.
Even with more instances, the result is the same… Stocks tend to outperform for around six months… and then underperform.
The table below shows the full results…
Again, the pattern here is consistent…
After a 10-day winning streak, stocks massively outperform their typical return in six months. But then they move lower… ending the year with returns well below a “typical” year.
This pattern actually reinforces the core theme that I’ve written about recently…
We’re in the late stages of a great bull market. But the biggest gains tend to happen in this final stage… And that means stocks can still move much higher before the bad times arrive.
I call this theme “The Melt Up.”
This rare string of “up” days is one indication the peak could happen as soon as six months from now. I believe it will be further out – 12 to 18 months. But the story is still in place…
Even after a consecutive run higher, stocks could outperform going forward… and then underperform in the long run.
Good investing,
Steve
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Source: Daily Wealth