High beta indexes are jumping
After it looked like the recovery was going to take a break, with large losses last Thursday, stocks have stormed back. Especially some of the higher-beta ones in indexes like the Nasdaq Composite and Russell 2000.
For the small-cap Russell, it just capped off three straight days with at least a 2% gain. That's only happened three other times.
When it triggered during the initial burst from the 1998 bottom, it was a great sign of momentum. The other two times, when the Russell was near its highs, it led to some short-term give-back of the gains, with large losses over the next month.
It was better for the S&P 500, though it also showed a negative return over the next month two of the three times.
The Nasdaq Composite, which contains a large number of technology-related stocks, has also seen a boost over the past few sessions, rising at least 1% each day.
Coming out of the lows in 1982 and 1998, tech stocks continued to roar over the medium- to long-term, though it ultimately gave back much or all of those large gains. The other signals preceded mixed returns. Even so, two months later the Nasdaq showed only a single loss.
For the S&P, it was mostly a good sign, but not nearly as strong as for the Nasdaq itself.
The S&P was higher only 54% of the time two months later. Over the past 30 years, the S&P showed a negative return sometime between 1-6 months later every time but once (1998).
A stretch like this will get financial media excited, while they should have been more impressed by signs of momentum in March and April. This kind of price rise has a mixed record, and can't be considered too much of a positive.