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Wednesday, February 20, 2013

What Happens After The Winning Streak?

By Christopher Mistal, Stock Trader's Almanac, Feb. 19, 2013.

Although the S&P 500 ended last end with a minuscule 0.1% loss on Friday, its weekly performance was sufficient to extend its weekly winning streak to seven consecutive weeks. Including the current streak, the S&P 500 has accomplished this feat just 28 times since 1950 and 36 times since 1930. Prior to now, the last occurrence ended in January of 2011. In that year, the S&P 500 also began the year with a near vertical trajectory that lasted until the day before Presidents’ Day (6.8% year-to-date gain).

On the day after Presidents’ Day, the S&P 500 began a three-and-half week pullback that eventually erased all of its yearly gains before bottoming in mid-March. Today’s solid performance has eliminated the possibility of this year following the same course, but the week after February options expiration still has a bearish history with declines in 11 of the last 16 years and all streaks eventually end.

In the chart below, the previous 27 weekly winning streaks of 7 or more weeks have been plotted to show the S&P’s performance the over the 30 trading days before and the 60 trading days after the streak ended. On average, when the streak ends, gains resume, but the pace slows significantly.
S&P 500 30 Days Before and 60 Days After 7 Week or Longer Winning Streak

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