How does the ASX 200 perform after an eight day win streak?

It's been 26 trading sessions since the S&P/ASX 200 bottomed on April 7, just three days after President Trump's destabilising 'Liberation Day' announcement.

During this time, the index has delivered some unprecedented moves, including:

• A 14.1% surge since April 7 and trading 5% above pre-Liberation Day levels.

• Gains in 20 of the 26 trading sessions (77%).

• A 4.5% single-day rally on April 10, the largest one-day move since the pandemic.

• A seven-day winning streak from April 22 to May 5, with a 5.4% gain.

• An ongoing eight-day winning streak from May 7 to May 16, up around 2.5%.

Historical Context: Seven vs. Eight-Day Win Streaks

Since 2000, the ASX 200 has recorded 40 instances of winning streaks lasting seven days or more, with an average gain of 3.52%. For eight-day (or longer) rallies, there have been 16 instances, with an average gain of 4.06%.

Earlier this month, I compiled the market’s average, median, and percentage of positive outcomes after a seven-day-or-longer winning streak.

Unlike datasets tied to volatility or selloffs, which often cluster around extreme events like the Global Financial Crisis or the 2020 pandemic, these winning streaks are distributed relatively evenly over time, reflecting a range of market conditions.

However, historical data suggests that such streaks often mark a near-term peak, as the market digests rapid gains, leading to softer one-and-three-month forward returns.

The average, median and % positive for the 40 instances where the S&P/ASX 200 rallied for seven days or more

Following the recent seven-day streak ending May 5, the ASX 200 has already rallied an additional 1.5% as of May 16. This outperforms the historical average, highlighting that past performance is not always a reliable predictor of future returns.

Eight-Day Streaks: A Closer Look

For eight-day-or-longer streaks, the data shows similar near-term choppiness. One-and-three-month forward returns remain volatile, though the percentage of positive outcomes is slightly higher than for seven-day streaks.

Notably, one-year forward returns are significantly stronger, averaging 5.87% (compared to 3.69% for seven-day streaks) and positive 81% of the time (versus 67%).

The average, median and % positive for the 16 instances where the S&P/ASX 200 rallied for eight days or more

The Bottom Line

Historical data suggests that massive winning streaks often push the ASX 200 into overbought territory, leading to choppy near-term performance as momentum fades. However, twelve-month forward returns after eight-day streaks are notably stronger, though the smaller sample size (16 instances) may skew these results.

The current rally, with a 1.5% gain just two weeks after the seven-day streak, is relatively rare. Of the 40 seven-day-or-longer streaks since 2000, only 7 (17.5%) recorded one-month forward returns of 1.5% or higher.

These instances typically occurred during recoveries from major market events, such as the dot-com crash (2000), the Global Financial Crisis (2009), the COVID-19 pandemic (2020), and the yen carry trade meltdown (August 2024). Historically, these periods of crisis have often preceded strong long-term forward returns.