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This Rare Extreme Points to Higher Stock PricesBy
Tuesday, October 27, 2015
October has been incredible for stocks...
Stocks started the month up seven days in a row (based on the Dow Jones Industrial Average)... and the good times haven't stopped...
The Dow has hit new highs for this month 12 different times.
That's amazing. See for yourself here:
The big question is, what comes next?... After an incredible month like that, things can't get much better, right? Stocks have to go down, right?
We went back through history to find out... And the answer will surprise you...
We studied history... We looked back over the last 25 years to see how many times the Dow Jones Industrial Average went up for seven days (or more) in a row... and to find out what happened to stock prices after that happened.
It turns out, seven straight "up" days is a rare extreme. It has only happened 24 other times in the past 25 years. But when it does happen, the Dow tends to outperform over the next several months.
Here are the details...
On any given day, the odds that stocks increase or decrease are roughly 50/50. But rarely – when markets are in strong trends – the market can go "up" or "down" for multiple days in a row.
That's what happened from October 1 to October 12. The Dow increased in value for seven straight sessions.
Again, this is a rare extreme. It turns out, the Dow tends to perform significantly better than "normal" after this happens. The table below shows the details...
The "typical" Dow returns in the table are what buy-and-hold investors would have returned since 1990. As the table shows, after stocks go "up" for seven straight days, they tend to outperform over multiple time frames.
Over a year, these extremes led to an increase of more than four percentage points. That's serious outperformance!
Importantly, these trades rarely lost money...
Buying and holding for three months after this extreme led to positive gains 75% of the time. And if you held for a year, you almost never lost money... Holding for 12 months led to positive gains 96% of the time.
This extreme alone isn't enough to make us incredibly bullish on stocks... But its message is powerful.
It's yet another reason that we believe there's more upside from here than downside over the next year. Stay in stocks!
Good investing,
Steve
Further Reading:
Read even more big-picture reasons Steve believes stocks are headed higher right here:
"History is our guide here – and it says higher prices are entirely possible."
"This is just one example of why I feel very strongly that there's still significant upside potential ahead of us in stocks..."
Market NotesA BIG-PICTURE UPDATE ON THE AMERICAN CONSUMER Today's chart takes a look at the big picture of our economy. Right now, the American consumer is alive and well... and the big businesses that sell to him are on the rise...
As we've mentioned many times over the years, as the economy improves, the American consumer spends a little extra money... and consumer-goods companies profit.
An easy way to monitor the action in these stocks is with the iShares U.S. Consumer Goods Fund (IYK). Its major holdings include Procter & Gamble, Coca-Cola, Philip Morris International, Nike, and Colgate-Palmolive... all of which have been soaring this month, all up around double digits.
As you can see below, IYK is in a steady, long-term uptrend. Shares had pulled back over the last couple of months during the market's selloff but have taken off since then... recently hitting a new all-time high. This much is clear: The American consumer is spending more money than ever before...
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