10 Up days for the DOW: Historic?

You all know that I have a peeve about ridiculous statistics. If you haven’t listened to the financial press recently, you’ve missed all the talk about how the DOW has risen 10 days in a row! It hasn’t done that since 1993. Also the DOW is up 11% this year. Since 1950 there have been 12 times that the DOW has been up 8% or more before March 15th. In 10 of those 12 years the DOW was higher 3 months out – between 1 and 6%.


Some comments:

10 days up - historic numbers – maybe numerically, but statistically significant? Not really – so what!! The largest rise during these 10 days was 82 points and there were 2 days less than 5 points. I’m sorry, but 3 points up doesn’t mean a thing and could have been a down day, breaking the streak, with a flick of a high frequency trader’s wrist. This isn’t like the NY Yankees winning 10 in a row. A Yankees win is 1 point. They don’t get .005 points for a win. 3 DOW points is .002% – insignificant. What is more important and meaningful is that this 10 day rise was 483 points = 3.4%. So we had a 3.4% rise with no aggressive selling to take profits. Now that does tell you something.

 

This “Ides of March” number has a little more substance to it, but still is the wrong noise. The substance is that it’s up over time – 2 1/2 months. So, good things are generally happening and it’s a trend. Trends tend to continue. But to use a statistic like this, point blank by itself as a reason to invest, is crazy. It’s just trying to stroke yourself into feeling good about your commitment while allowing you to let your guard down. Black Swans and variables can come out of nowhere or from somewhere and change that trend, and to not be aware of them because of some foolish statistic is irresponsible.

I had an e-mail exchange with a technical analyst from TheStreet.com a couple of days ago. She had pointed out that the small cap index (Russell 2000) had been up 8 days in a row. She was looking at the history of that happening and what happened next. Now remember, I don’t think “days in a row” means a hoot – it’s the substance, size and duration of that move that matter. I asked her if that meant one should wait for a pullback and then look for the trend to reassert itself, or rather take the other side of an extended move? I also mentioned that if I was at a casino and red came up 8 times in a row, I’d bet black and just double my bet each time I lost. I could go broke but the odds become extremely low very quickly. Her answer: She’d immediately take the other side. Sounds like she’s going black.

To learn more about Joe and how he beat the system, click here.