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Dow Winning Streak Captivates Traders, Tests Statisticians


By now you've surely heard that the nine-day winning streak on the Dow Jones Industrial Average (^DJI) is its longest since 1996. If it succeeds today in extending its run for a tenth day, it would be the 25th time it has achieved this feat in the past 70 years.

To gain the all-time longest streak title, the Dow Industrials will have to topple a 14-day streak set back on June 14, 1897, according to Rebecca Patterson of S&P Dow Jones Indices. The longest modern day streak was 13 days in January 1987.

Of course, length versus the magnitude of the streak are completely different metrics. The current mini-stampede has only delivered a 2.85% gain, making it the fifth weakest of 25 such moves, according to Bespoke Investment Group.

"The odds are we won't go ten days, but the odds were we wouldn't go nine days," says Hugh Johnson, chairman & CIO at Johnson Advisors, in the attached video. "This is a pretty unusual experience, but markets don't go straight up, and you and I and probably everyone who is watching knows that instinctively."

While the Dow Industrials, as well as the Dow Transports (^DJT), Russell 2000 (^RUT), Mid Caps (^MID) and numerous individual blue chip companies have already topped their pre-crisis peaks, the S&P 500 (^GSPC) still has not, although it is getting closer by the day. Interestingly, the catalyst that extends the Dow's run could also send the S&P 500 to a new all-time high.

Like most investors, Johnson is therefore playing the odds and predicts some sort of correction will occur "sooner or later," not due to old age as much as to ''lots of (other) good reasons" that the market seems to be able to ignore.

"So if there's a correction, even if it's a severe correction, it will be within the context of what I think will be an ongoing bull market," he says, adding that it would be a much-welcomed event.

What that means is that instead of counting the consecutive green days, investors should really be praying for a red day to bring some semblance of value back to a market that has gone almost straight up since mid-November to the tune of 16%, or roughly 2,000 Dow points.

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