Thursday, November 9, 2023
Key Takeaways:
- The S&P 500 and Nasdaq Composite are riding respective eight- and nine-day winning streaks into Thursday. Oversold conditions, solid earnings, and a sharp pullback in interest rates have been the primary drivers of the rebound.
- How long will the streaks last? History implies roughly 50% odds the indexes will extend their winning streaks in today’s session.
- And while all winning streaks eventually end, the degree of consistent buying pressure in U.S. equity markets suggests investor confidence is improving and momentum is building.
- Furthermore, winning streaks of this magnitude are not only rare, but they are also associated with solid forward returns over the next 12 months.
The S&P 500 and Nasdaq Composite are enjoying their longest winning streaks in two years. The S&P 500 has strung together eight straight days of gains, while the tech-heavy Nasdaq Composite has been up for nine consecutive sessions. Oversold conditions, solid earnings, and a sharp pullback in interest rates have been the primary drivers of the rebound.
From a technical perspective, the S&P 500 has climbed back above its 50- and 200-day moving averages, closing on Wednesday just below key resistance at 4,400. A breakout above this level would reverse the S&P 500’s current downtrend and check the box for a higher high, raising the probability that the correction lows were set last month. A similar technical story has developed on the Nasdaq Composite, which needs to clear 13,660 to break its October highs.
The S&P 500 & Nasdaq Composite have Rebounded Back to Inflection Points
How Long Could These Winning Streaks Last?
For the S&P 500, just over 50% of eight-day winning streaks turn into nine, while the longest run of consecutive gains is 14 days since 1950. As of November 8, the S&P 500’s 6.4% gain amid its current eight-day winning streak is also well above the average 4.5% gain generated during other exclusive eight-day winning streaks.
History implies roughly the same 50% odds for the Nasdaq Composite extending its current nine-day winning streak into 10, while the index’s longest streak of daily gains stands at 19.
Where Could the Market Go From Here?
Consistent buying pressure of this magnitude is not only rare—eight up days in a row have only occurred in 2.3% of all eight-day periods for the S&P 500 since 1950—but also a bullish sign for improving investor sentiment and market momentum. And while all winning streaks eventually end, history suggests the rally may not. The chart below highlights the average progression of the S&P 500 and Nasdaq Composite after generating eight and nine days of consecutive gains, respectively. On a 12-month basis, the S&P 500 has climbed higher by an average of 9.1% following an eight-day winning streak, with 72% of occurrences posting positive results. The Nasdaq Composite has posted an average gain of 11.0% 12 months after a nine-day winning streak, with 79% of occurrences producing positive results.
SUMMARY
Stocks have staged a meaningful recovery off oversold levels. The S&P 500 is riding an eight-day winning streak that has left the index near key resistance at 4,400. A close above this level will be required to reverse its developing downtrend. And while all winning streaks eventually end, the degree of consistent buying pressure in U.S. equity markets suggests investor confidence is coming back and momentum is building. Furthermore, winning streaks of this magnitude are not only rare, but they have also been associated with respectable forward returns over the next 12 months.
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