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Thursday, March 16, 2017
U.S. stocks ended February with one of the rarest streaks we've ever seen...
The Dow Jones Industrial Average moved higher for 12 consecutive trading days.
That has only happened two other times since 1950... And the last time was 30 years ago.
This kind of streak spooks most investors...
"What goes up, must come down," they think... So after 12 days of rising stocks, people assume we are due for down days.
But is that true? Is there any basis to that thought?
Let's find out...
The Dow's recent hot streak was impressive... and nearly unprecedented. It has only happened twice in the past 67 years. The most recent occurrence was in 1987, and the other was in 1970.
What's interesting to me is what happens after these kinds of streaks...
Stocks tend to continue higher for around six months... and then they move lower.
This happened in both 1987 and 1970. Stocks rose 15%-plus in five to seven months and then fell... eventually going negative in both cases.
The problem, of course, is that we only have two examples. It's hard to draw conclusions from something that has only happened twice.
To solve that problem, I looked at every instance where the Dow rose for 10 straight days. That has happened 20 times since 1950.
Even with more instances, the result is the same... Stocks tend to outperform for around six months... and then underperform.
The table below shows the full results...
Again, the pattern here is consistent...
After a 10-day winning streak, stocks massively outperform their typical return in six months. But then they move lower... ending the year with returns well below a "typical" year.
This pattern actually reinforces the core theme that I've written about recently...
We're in the late stages of a great bull market. But the biggest gains tend to happen in this final stage... And that means stocks can still move much higher before the bad times arrive.
I call this theme "The Melt Up."
This rare string of "up" days is one indication the peak could happen as soon as six months from now. I believe it will be further out – 12 to 18 months. But the story is still in place...
Even after a consecutive run higher, stocks could outperform going forward... and then underperform in the long run.
Editor's note: Steve recently put his "Melt Up" idea into a simple presentation. In it, he explains exactly what's going on today... including how a new, mysterious buyer has entered the stock market, creating major financial waves. It's setting up the perfect conditions... and Steve believes stocks could soar in the coming months. You can watch the entire presentation free of charge right here.
"What was my big mistake in the late 1990s?... I missed out on the fantastic performance of stocks during the final innings of the stock market boom," Steve writes. Now, learn why you should plan to ride today's market higher right here: Dow 20,000 – Don't Chicken Out!
If you believe bull markets die of old age, think again... Steve shares a better way to predict market tops, and explains why you could make huge gains investing in 2017 as this market heads toward its peak. Read more here: The Age-Old, Old-Age Problem in Bull Markets.
THIS COMPANY CONTINUES ITS LONG-TERM UPTREND
Today, we're giving kudos to our colleague Dave Eifrig...
Last June, Dave told his Retirement Millionaire subscribers to buy shares of tire-maker Goodyear Tire & Rubber (GT). The company was in the midst of a turnaround, focusing on higher-end tires and cutting costs. As a result, Goodyear became a smaller company... but a more profitable one.
Meanwhile, a long-term bear market in global commodities had pushed prices of raw materials lower. And low gas prices meant Americans were driving more than ever before. These factors, Dave said, were creating a tailwind for Goodyear shares.
As you can see from the chart below, not only was his call correct, it was well-timed, too. Yesterday, the stock hit its highest level since the financial crisis. Shares are locked into an impressive uptrend, up nearly 180% in the last four years alone. And Dave's readers are up more than 30% since his June recommendation.