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What the Dow's 10-day winning streak is signalling about what's to come Add to ...

Even for investors who don’t care for some of the more statistical elements of the stock market, it is getting increasingly difficult to ignore the impressive winning streak for the Dow Jones industrial average.

The blue-chip index has risen for nine straight days, marking the longest streak since 1996. And if it holds early gains on Thursday, that will mark the tenth day of gains – eight of which have produced record-high closes.

Winning streaks make a lot of noise in the world of baseball, and it is often tempting to apply a similar analysis to the market – in a forward-looking way. For the bears, it is tempting to believe that there will a day of reckoning when the streak ends, with a sharp decline. And the bulls no doubt entertain the possibility that the streak is a set-up for the next leg of the bull market.

The truth is probably far less interesting. Indeed, the winning streak is likely no less important than winning consecutive coin tosses and then mulling over the implications.

Bespoke Investment Group has crunched the numbers for the nine-day streak, to get a glimpse of what the future holds. The patterns are far from impressive.

According to their numbers, there have been 24 prior winning streaks of nine days or more for the Dow in the post-war period, and 11 of them (or 46 per cent) have gone on to at least a tenth day. So, another coin toss.

As for the longer-term, the Dow has averaged a gain of 0.5 per cent over the following week, with gains 64 per cent of the time; an average gain of 0.4 per cent over the following month, with gains 52 per cent of the time; and an average gain of 2.5 per cent over the following three months, with gains 68 per cent of the time.

In other words, the period following an extraordinary winning streak for the Dow has been anything but extraordinary. However, here’s one stat that jumps out: The current winning streak, according to Bespoke, has driven the Dow up 2.85 per cent over the previous nine sessions. That is the weakest in terms of percentage gains since 1964.

Meanwhile, investors might soon be turning their attention to a far more significant statistic: The broader S&P 500, which is far more reflective of the equities landscape than the 30-member Dow, is just five points away from hitting a new record high.

Follow on Twitter: @dberman_ROB


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