S&P 500 Is Doing Something It Did Just Before Black Monday

The S&P 500 Index (SPX) is on pace for an eighth straight day of gains, which would represent its longest winning streak in four years. In addition, another higher finish today would mark the SPX's sixth consecutive record close -- a feat not accomplished in 20 years, and one that preceded Black Monday 30 years ago. Against this backdrop, we decided to take a look at how the stock market tends to fare after these lengthy rallies.

SPX Pacing for Smallest Gain During an 8-Day Rally Ever

During the SPX's last eight-day winning streak, the index tacked on 4.2%, according to data from Schaeffer's Senior Quantitative Analyst Rocky White. From its Sept. 25 close at 2,496.66 to its current perch at 2,548.63, the S&P has added roughly 2.1%, which would represent the smallest return during an eight-day winning streak in at least 50 years. Currently, the smallest return during one of these streaks is 2.2%, which happened during the early 2013 rally. Prior to 2013, you'd have to go back to late 2004 for an eight-day run higher.

9-Day Rallies Rare for S&P 500

There have been 30 rallies of at least eight days in the past 50 years. As you can see on the chart below, the upside momentum often stops on Day 9 of the rally, with the S&P's average one-day return -0.11%. However, starting two weeks after an eight-day winning streak -- which we'll call a signal -- the index tends to outperform, averaging a gain of 0.63%, which is about twice its average anytime two-week return of 0.32%.

One month after a signal, the SPX was up 1.34%, on average -- again, about double its average anytime one-month gain of 0.66%. What's more, the S&P was in the black 73.3% of the time one month after an eight-day winning streak, compared to 60.1% anytime. Three months later, the S&P averaged a healthier-than-usual gain of 2.36%, with a win rate of 70%. In other words, strength tends to beget strength for the stock market barometer in the short-to-intermediate term.

Record-Setting Streaks Have Preceded Notorious Stock Market Drops

As alluded to earlier, a record close today would mark the S&P 500 Index's sixth straight -- a feat not accomplished since June 1997. In fact, there were four of these stretches in the 1990s, during the dot-com boom, and two in 1987, just before Black Monday, 30 years ago. It's also worth noting that one of these signals occurred in November 1972, just before the bear market of 1973-1974, and twice in 1961, prior to the "Flash Crash of 1962."

Looking at S&P performance after at least six straight record high closes, the index has averaged a negative return both the next day and one week after these record-setting runs, and averaged a gain of just 0.34% one month later -- about half its anytime one-month gain, going back to 1955. However, three months after these streaks, the SPX was up 2.66%, on average, and higher 82.4% of the time. That's better than the index's average anytime three-month gain of 1.98%, with 65.1% positive.

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