Stocks' end six-day streak. Do more gains lie ahead?
After six days of gains, stocks' streak is over. But past patterns suggest a good month ahead.
The six-day streak of gains on the Dow Jones Industrial Index ended Tuesday with a small loss of 1.7 ponits. But take heart investors.
If history is a reliable guide, more gains are likely within the next month.
As we've pointed out in previous posts, such streaks usually come in bunches. The current bull market has seen four such streaks – a seven-day string of up days in July, an eight-day string in August, a six-day string in November, and now late December's six-day tear.
The pattern is reminiscent of the 1970/71 bull market, which saw five streaks of six days or more and had gained 38 percent by the time it was over. Currently, the Dow is up 61 percent since its bear-market low in March.
Technical analysts – the Wall Street gurus who typically look for such patterns – are not convinced that investors can gain much by looking for streaks. They may be a coincidental outcome of a generally rising market.
Even if you pay attention to streaks, their long-term forecasting value is unclear. Streaks can occur at market tops as well as market bottoms, so investors should be wary of using them as indicators much beyond a month. (Click here to see what happened in 1987, for example.)
Still, as I pointed out in July after the seven-day upswing that occurred four months after the market's low, only three times since 1970 has a seven-day or better string occurred so soon after a bear-market low. The first two times, the Dow was up 33 percent and 21 percent one year later.
Five months into this upswing, the markets have done even better. Tweet us with any guesses on what the next seven months will bring.