The Dow is officially down 8 days in a row for the first time since March 2017. Should it finish in the red today, that will tie its longest losing streak since 1978. What does it mean though?
Well, for starters, in the face of this weakness, we’ve seen small caps and technology break out to new highs; so the whole market sure isn’t falling apart. Going all the way back to 1896, when the Dow started trading, there have been 29 other 8-day losing streaks, and the average decline during those streaks has been 7.0%. Considering the Dow is down “only” 3.4% on this losing streak, and the index has seen 390 single-day declines of 3% or more since its inception in 1896, things really are quite contained; dare we say normal?
LPL Research Senior Market Strategist Ryan Detrick sums it up: “The 8-day losing streak will get all the headlines, but what you probably won’t hear is that this streak was quite modest in terms of its percentage decline. Also consider that the index remains above its 200-day moving average. Historically, this is very rare, but the future returns have been rather strong in these scenarios.”
As our LPL Research Chart of the Day shows, the Dow has tended to bounce in the near-term after a long losing streak ends. In fact, you’d need to go back to 1982 to find that last instance where the index wasn’t higher three months after an 8-day (or longer) losing streak. But what is really important is that the future returns after a losing streak ends above the 200-day moving average have historically been even better. Although this current losing streak isn’t over yet, the Dow will likely remain well above the 200-day moving average when all is said and done; and this could be a good sign for the bulls.
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Dow Jones Industrial Average (DJIA): A price-weighted average of 30 blue-chip stocks that are generally the leaders in their industry.
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