What the Dow's Win Streak Could Mean for Q4

The Dow Jones Industrial Average (DJIA) is fresh off a seven-day winning streak, as well as its fourth straight all-time high. Today, the Dow is set to snap its winning streak, but could rally even harder than usual in the fourth quarter, if history is any guide. Against this backdrop, we're going to look at how the blue-chip index performed after previous seven-day winning streaks.

The DJIA has enjoyed 54 rallies of at least seven days in the past 50 years, the last of which occurred in late September. According to data from Schaeffer's Senior Quantitative Analyst Rocky White, the upside momentum often continues to an eighth day, with the Dow's average one-day return 0.13%. However, starting two weeks after a seven-day winning streak -- which we'll call a signal -- the index tends to outperform, averaging a gain of 1.32%, which is about four times its average anytime two-week return of 0.30%, going back to 1967.

One month after a signal, the Dow was up 1.95%, on average -- about triple its average anytime one-month gain of 0.64%. What's more, the blue-chip index was in the black 77.4% of the time one month after a seven-day winning streak, compared to 59.3% anytime. Three months later, the Dow averaged a healthier-than-usual gain of 3.34%, with a win rate of 75%. In other words, strength tends to beget strength for the stock market barometer in the short-to-intermediate term.