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Three-straight days of outsized moves usually is a good sign for stocks
Subscribers to Chart of the Week received this commentary on Sunday, April 27.
A term usually reserved for basketball junkies, “spurtability” refers to a team’s ability to score in bunches. Whether streakiness is a positive in basketball terms depends on a variety of other factors, but streaky teams are objectively more volatile. Last week between Tuesday and Thursday, the Dow Jones Industrial Average (DJI), S&P 500 Index (SPX), and Nasdaq Composite (IXIC) rattled off three-straight days of 1% gains or more. The Dow and Nasdaq rattle off 1% wins or more all the time, often together, but to have the SPX join its peers? That’s a big deal! Two-day runs of 1% or more from all three indexes tend to occur once or twice a year. But three? That’s a rare occurrence that should have set off more alarm bells than it seemingly did. Is this a sign of a steadying stock market, and a good omen going forward? Or is it a flash in the pan that ultimately turns out to be a pump fake?
Thanks to Senior Quantitative Analyst Rocky White, we have our answer. It’s certainly a bullish indicator, if past is precedent. But like always, a more layered, contextual approach is needed to fully unpack the data.
Going back to 1973, there have been 15 prior instances where all three indexes posted gains of 1% or more, three days in a row. The most recent was March 2022, when stocks were trying to claw back to their early 2022, then-record highs. Per White’s data in the tables below, all three indexes – the SPX and IXIC in particular – outperform overall after these streaks compared to what’s typical, going by average return.
The DJI generally outperformed after such streaks, but struggled out of the gate, finishing lower a week later. The two-week, one month, and three month returns all eventually leg out the anytime returns, though. The most attractive index per this study is the tech-heavy IXIC, which posted an average return after streaks that was more than double the anytime returns, in all except one time frame.
Our current market ecosystem is harder to assess than usual, though, and this uncertainty is reflected amongst the brokerage bunch. This week’s American Association of Individual Investors (AAII) showed bearish sentiment at 50% or more for nine weeks in a row. Per Bespoke Report, this streak has only occurred three times since 1987: Back in 1990, in the aftermath of the financial crisis in 2008, and in October 2022.
Sample size is critically important in quantitative analyses like these. Is 15 prior occurrences of across-the-board gains, three days in a row, enough over 38 years to form a bullish thesis? Of course not, especially because of how rare market conditions are right now. Stocks are in retreat in lockstep with the U.S. dollar, while gold and U.S. Treasury yields both surge. Uncertainty and odd stats happen when you inject tariffs – largely an antiquated foreign policy strategy, gleaned straight from a history book of the 1800s – into what was a relatively stable global economy.
In another example of oddities, consider the Cboe Volatility Index (VIX). Wall Street’s “fear gauge” has retreated back below 30, ironically around the same level it was the last time all three indexes scored three-straight days of 1% gains or more. However, as Jim Carroll noted on Twitter this week, there have been two instances in history when the VIX spiked above 50 and then came back down below 30, all within a month. You can probably guess the prior two times: The Great Financial Crisis and the Covid-19 crash.
While it’s on my mind, if somebody wants to show you all the good things that happen after $VIX goes above 50 and then comes back below 30, tell them to shut the F* up because its only happened three times EVER. pic.twitter.com/59D9gSPWYN
— Jim Carroll (@vixologist) April 24, 2025
There’s enough of a sample size now from the Trump administration’s “make it up as you go along” behavior to know that investors should be ready for anything in the coming weeks and months. In laymen’s terms, weird stuff is going to happen. This week was a staredown between Trump’s erratic tariff policies and the market, and the latter won out, for now. It may not next week, next month, or next year. But through this roller coaster of emotion-based, headline-driven market moves, keep those three days of across-the-board gains in mind going forward, because tradeable rallies can occur in any climate.