We're Going Streaking! Breaking Down the Nasdaq's Historic Run
It's party time on Wall Street, but when is the hangover coming?
Man, it felt good to throw an Old School meme into this week’s Substack title image. And its perfect because this week was certainly a rager for tech bulls.
I had designs on going deep into drones or some other high-beta sector this week. Then the Nasdaq proceeded to rip off an absurd 13-day win streak, and I had to pivot.
The last time the Nasdaq was on a streak like this, I was checks notes three years old.
Michael Jackson’s Black and White was the #1 song.
The average price for a gallon of regular unleaded gasoline was $1.02-$1.13.
The Czech and Slovak Federative Republic (ČSFR) was a thing.
For the 12-day streak (July 2009), I just wrapped my freshman year at Centre College.
The Black Eyed Peas were ripping through the airwaves.
I was running the beep test to get ready for preseason.
I had just failed Microeconomics (seriously) the semester prior. I guess it took me 17 years to understand elasticity.
There are so many fun nuggets within this historic win streak. Let’s try to unpack it all, then prepare for what might come.
Call me Ryland Grace the way I relied on Senior Quantitative Analyst Rocky White this week.
The Anatomy of a Heater
The gains wrought from the streak weren’t just little dink and dunks. It wasn’t death (to bears) by a thousand cuts. Instead, a 3.8% melt up on 4/1 set the tone. From there, there were six more instances of a 1% or greater move, including Friday’s xx% gap.
Here are the longest Nasdaq win streaks in history, sent before the open on Friday:
This is not only a historically-long streak, its a historically-productive one. The streaks from the 70s and 80s were so incremental. Imagine being positive for 19 straight days yet only up 5.6% over that time frame. I’d be losing my mind.
More History
The Nasdaq blew past 22,000 in four days. It blew past 23,000 in two! Not since the Liberation Day lows has been that quick of a 1,000-point move.
This was the Nasdaq’s best 13-day start to a quarter in history. The only one close was the Covid rally from Q2 of 2020.
Stars of the Show
Advanced Micro Devices (AMD was in lockstep with the Nasdaq every step of the way, the 13-day win streak its longest run since 2005.
AMD was trading around $20 back then.
This current run culminated in a record high of $281.05, during which AMD added over $101 billion in market cap. AMD dipped into the red for a little Friday but eked out a marginal win. Pure class.
Intel and Nvidia rattled off respective nine and 10-day heaters, and the iShares Semiconductor ETF (SOXX) ran out of gas only on Thursday.
What Does it Mean?
Rocky’s got the goods to plan ahead.
2009 is the best litmus test, but even that’s ancient history. The upside is still there though; the Nasdaq was higher across one, three, and six-month returns.
One and two weeks later, streaks result in bullish returns that outpace anytime, but the average anytime returns eventually overtake the streak after that.
The most important takeaway is that the Nasdaq doesn’t completely pack it in and drive off a cliff after these runs.
The sample size discrepancy bothered me a little, so I had Rocky pull the data for 11-day win streaks as well.
24 instances is a little larger sample size, and the most exciting part? When the streak was 11 days and the return during the streak was at least 10%, looking at one-month returns, there were five returns, all positive, ranging from 3.3% to 8.2% with an average of 5.6%.
Raining on the Parade
Because I cannot enjoy things for too long, the next thought in my brain after seeing the Nasdaq gap higher on Friday was:
Well, its gotta be oversold now, right?
Right..
The Nasdaq’s 14-Day Relative Strength Index sits sat 74.4, its highest level since late September.
Here are the historical returns of RSI climbing past 70. Note this counts the first time such an overbought condition occurs. Nothing too crazy, just slight outperformance on the three and six-month timeframes.
But it gets juicy for the more recent data. The last five times, the index was positive every time one month later. Four of the last six times, the index gained double digits over the next six months.
Within the Nasdaq, who are the main “overbought” culprits? There were a ton (686), so I whittled it down by market cap > $10B.
A lot of heavy hitters; Alphabet (GOOGL), Nvidia (NVDA), the aforementioned AMD, Microsoft (MSFT).
And to really be a Debbie Downer, this tweet from Joe Weisenthal is living rent-free in my head.
The Strait is open as of this writing and a nuclear deal appears imminent. But the rest of what Joe said still rings true, a much-needed reality check.
But at the same time, there’s pessimism abound to be wrung out. Nasdaq-100 (NDX) put/call volume is off its 4/2 peak, but still at its highest levels in over a year.
As of April 1, short interest was in the 100th percentile of its 12-month and five-year range. It had increased 6.3% since mid March.
I’m not a CMT, but that’s a whole lot of pessimism that’s still to be unwound. This party might be a bender, better call Frank the Tank.
But just a quiet reminder that Frank was kind of a mess after all of that…