Is seven straight up weeks a good thing or a bad thing?

Key points:

• The S&P 500 registered its seventh consecutive up week on May 15th
• This has happened only 37 times since the 1920s
• The common perception/concern is that a run of this magnitude (almost two straight months of higher weekly closes) may constitute action resembling a blow-off top
• History appears to say something different

The S&P 500 has been on a heater

From January 30^th through March 27^th, the S&P 500 declined 7 out of 8 weeks, losing -8.2% in the process. With fears of war, higher energy costs, and inflation swirling, things looked fairly dire. However, since then, the S&P 500 has registered 7 consecutive higher weekly closes, soaring 16.3% in the process, to a new all-time high.

Interestingly, the overall response has been something less than enthusiastic. The rally has completely confounded existing market bears, and now there is chatter of a "blow-off" top. But what does history say about a 7-week rally? Let's take a closer look.

Seven straight weekly advances tend to beget more strength

Our test period runs from January 2nd, 1928, through May 15^th, 2026, or almost 98.5 years. The table below lists every time the S&P 500 advanced for consecutive weeks following at least one down week and summarizes subsequent S&P 500 performance.

Note that 3 months shows an 81% Win Rate, with a Mean return of 3.9% and a Median return of 3.5%. How does this compare to "all" three-month periods since 1928? The table below summarizes S&P 500 performance following seven consecutive up weeks versus all three-month periods since 1928.

Note that the win rates and returns following seven straight up weeks are well above average.

Seven straight weekly advances as a trading strategy

For the sake of argument, let's consider "Seven Up Weeks (with a 3-month holding period)" as a standalone trading strategy.

If the S&P 500 closes higher for seven consecutive weeks:

• Buy the S&P 500 Index
• Hold for 63 trading days
• A stop-loss of 12% is also included to avoid any catastrophic losses

The chart below shows all signals since the 1980s. Note that the signal historically does not fire during a bear market rally, nor (so far) just before the onset of a major bear market.

The table below summarizes cumulative S&P 500 performance if held for three months after each signal.

Note that this "strategy" (such as it is) is only in the market 8.5% of the time and has shown an 82.3% Win Rate.

The chart below shows the hypothetical cumulative % gain/loss following the rules above. Note that although the strategy is by no means impervious to declines, the overall trend is steadily from lower left to upper right.

The tables below show performance on a signal-by-signal basis. The maximum open loss from the entry price is highlighted in red. Note that (so far) only one trade (August 6, 1932) declined enough within three months of entry to trigger a stop-loss of -12.0%.

What the research tells us…

Do seven consecutive weeks of advance for the S&P 500 Index truly constitute a "Buy" signal? That's up to each trader to decide for themselves. Should traders be trading long the S&P 500 Index between now and mid-July based on this signal? Same answer. Whether the signal generated on May 15^th will generate a gain or a loss in the months ahead is impossible to predict. The key point of this note is simply to highlight that "strength tends to beget strength" in the stock market. While we should never throw caution to the wind, we should not fear market strength.