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What to Make of the Dow's Longest Losing Streak Since 2011

Why our analysts expected the DJIA's downturn

by Bob Stokes
Updated: March 28, 2017

The DJIA just registered its longest losing streak in nearly six years. Yet, from Feb. 9 through Feb. 27, the index posted its longest winning streak since 1987. Our analysis of that winning streak reveals why we haven't been surprised by the DJIA's downturn.

 

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[Editor's Note: The text version of the story is below.]

On March 27, the DJIA dropped for an eighth consecutive trading day, the longest losing streak in nearly six years.

A Wall Street Journal subheadline offered an explanation:

Withdrawal of health-care plan has investors fretting about tax overhaul, infrastructure spending

But the stock market's Elliott wave structure foretold of the decline weeks ago, when there wasn't a hint that the Dow would register such a long losing run.

Indeed, just the opposite had occurred. The Dow had just closed higher for 12 straight days, from Feb. 9 through Feb. 27, its longest winning streak since 1987. Our March Elliott Wave Financial Forecast (published March 2) provided this analysis:

The 13-day closing streak in January 1987 ... occurred in the middle of a powerful third-wave rally. That streak included back-to-back days of nine-to-one advancing issues versus declining issues on the NYSE, a record NYSE volume day on the upside and two daily Dow-point gains that made records at the time. The wave structure indicated it was the middle of an advance, and the market's breadth and volume confirmed it.

Compare these measures to the Dow's recent 12-day closing streak, which occurred with a negative NYSE a/d ratio on four out of the last seven days of the streak and more NYSE volume on the downside relative to the upside on five out of the last seven days. These weak measures of breadth and volume are occurring with investor bullishness toward stocks at its highest level in years. Our conclusion is that the current streak is signaling a rally that is not in the middle but very near its end.

So, suffice it to say, we haven't been surprised by the market's pullback.

Of course, the question investors are asking now is: Are stock prices headed even lower?

Our Short Term Update, which publishes Mon., Wed. and Fri., addresses that question head on.

The March 27 Short Term Update shows a daily and a 120-minute chart of the DJIA, accompanied by extensive commentary. Also, the publication shows a highly informative sentiment measure that reveals record market positioning (you can learn whether they're long or short, risk-free) by a particular group of investors who are almost always right.

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