A Rare Run for the Dow Is a Signal to Buy

This year's stock rally is so strong that even the "boring" Dow Jones Industrial Average is getting in on the fun...

That wasn't the case for most of the year with these "old school" stocks, though. The Dow was up just 2% on the year in early July. Over the same period, that's just a fraction of the 15% and 31% gains we'd seen in the S&P 500 and the Nasdaq Composite Index, respectively.

Then the Dow went on an incredible run higher...

The index recently rose for 13 consecutive trading days. That's tied for the second-longest streak in history. And we've only seen a similar move happen two other times in more than a century of data.

This impressive streak has gotten the Dow moving back in the right direction. And it could spark a 17% rally over the next year.

Let me explain...

You might not think much about how the major indexes compare with each other... But you probably know that the Dow is as boring as it gets.

The Nasdaq is the most exciting of the bunch. It's full of technology stocks and high-growth businesses. Next is the S&P 500. It's considered the "everything" index, since it tracks all the important large-cap stocks.

Finally, we have the Dow. It only holds 30 companies. Many of them are "old guard" industrial stocks. And they're weighted based on share price, not market value.

Put it all together, and you get a less volatile, less "exciting" index. And that's why it basically went nowhere in the first half of 2023 while the S&P 500 and Nasdaq soared.

Things are changing, though. Again, the Dow just finished one of its longest streaks of up days in history. Take a look...

Moving higher for 13 straight days is no small feat. And it's incredibly rare. In fact, it's the third time ever that the index has pulled this off.

The bigger question, of course, is what this all means going forward. To get more data, I tested what happened each time after a winning streak of 10 days or more in the Dow.

First, I looked at the data going back to 1950. Those rallies haven't exactly led to massive future returns. The one-year returns after each setup roughly matched a typical annual return.

However, this becomes a powerful signal when we zoom in. We've seen four similar up-day setups happen in the past 30 years. And the returns that followed were darn impressive. Take a look...

Sure, the Dow is the boring index. But it has also been a strong performer over the long term. The index was up 7.9% per year over the past three decades. However, you can do much better by buying after this kind of setup...

Similar instances have led to 5.7% gains in three months, 9.1% gains in six months, and an outstanding 16.7% gain a year later. That's huge outperformance in all cases. Even better, this signal had a perfect win rate.

It's worth noting, again, we only have four cases to go on – so our sample size is small. You probably wouldn't want to "bet the farm" on this idea. Still, a string of up days means the trend is strengthening.

Stocks overall have been soaring this year. Now, this boring index is catching up to its peers. History shows more gains are likely for the Dow... And that's more good news for today's bull market.

Good investing,

Brett Eversole

Further Reading

"The S&P 500's performance in the first six months of this year was uniquely good," Brett writes. This surging recovery after a recent bear market is rare. Best of all, history shows it could lead to new all-time highs ahead... Read more here.

"At times, the market gives you a particularly ripe opportunity to buy stellar businesses with great dividends at good prices," Dr. David Eifrig says. Steady blue chips are a great bet for long-term income investors. And you can do even better by looking for one specific quality... Learn more here.