Can the S&P make it 9 days up out of 9?

The S&P 500 Index (SPX) is in the midst of its longest daily winning streak in over eight years, as of Friday’s close it has seen eight straight positive days. Does this daily winning streak mean anything for the market going forward? Does it point to underlying strength — or have stocks become overbought? Let’s have a look at some anecdotal history below

Streaks of Eight: Looking back over the past 30 years, this is the 14th time the S&P 500 has been up at least eight days in a row. The first table below summarizes returns for the index following those previous winning streaks. The second table shows typical returns for the index over comparable time frames, as a point of comparison. The first thing I noticed is that the one-month and two-month returns after a winning streak are very bullish, and are positive 85% of the time. So, over those longer-term time frames, the winning streaks have been a sign of strength.

However, when you look at the shorter-term time frames — one day and one week later — the average return is less than the typical market return, even though the percent positive is higher. That’s because the average positive return is considerably smaller than the average negative return over the same time frame. Therefore, as one might imagine, when the market is up eight straight days, the possibility of continued upside in the short term is limited. On a positive note, when looking at the average one-week negative return, it’s not as big a loss as the typical average loss. That’s good news, since it suggests sharp pullbacks have not been common after these winning streaks, as some might fear.

Returns During the Streak: The table below shows data for each eight-day streak over the past 30 years. Note that the return over the past eight days is just 2.19%, which is the lowest out of all of the streaks. It’s notable that the next lowest return was 2.44% in 1995, and that streak reached 12 days — the longest such streak in this 30-year period.

Finally, let’s look at a break down of those streaks by whether the return during the streak was less than 4%, such as the current streak, or more than 4%. In the short term, the streaks with returns of less than 4% are much more bullish than the streaks that had higher returns. In other words, the fact that the gains have been muted during the current eight-day streak may point to a relatively lesser chance the market is overbought in the short term. When you go farther out, to the one- and two-month returns, those are quite bullish in either case.