Today, the Dow Jones Industrial Average (DJIA) closed its 12th consecutive day higher. Sound amazing? You are right. In fact, throughout its 132-year history, there have only been three other instances where the DJIA ran a 12+ day winning streak.
Indeed, a 12-day bullish streak of the DJIA is rarer than a real-life Snow Donut – and equally exciting for stock traders. Before digging into the research, I was inclined to think thoughts like “Wow, the market needs to rest” or “Can this really go any higher?!” I was expecting to prepare for consolidation or bearish move.
The actual research surprised me.
In every instance of a 12+ day winning streak on the DJIA, it continued to trade higher 1 week, 1 month and 3 months following. Every time. In the chart to the right, I recorded every winning streak of 11 or more days so we could have a little larger sample size. Notice that including every instance of a streak 11 days or longer still returned a 100% positive return 3 months following the conclusion of the stream.
Now is an important time to remind you the past performance is not indicative of future gains. It is ALSO a good time to remind you to think twice about betting against this market.
What can we take away from this observation? Winning streaks happen during bullish markets. They tend to be an indication of the strength of the uptrend and not a warning sign of an imminent crash. Any feelings that the market is becoming unsustainable need to be checked against the facts that history is providing us.
Obviously, use excellent risk management principles and put cash in your jeans as you hit your targets. You may also want to consider using targeting methods and stop techniques that allow you to run with this trend.
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