As we highlighted on Wednesday, the S&P 500 Financials sector extended its overbought streak to 24 trading days and made a new all-time high as of yesterday’s close. The sector has now also risen for 6 straight days, with each close occurring in extreme overbought territory (at least 2 standard deviations above its 50-DMA). This is a rare occurrence for the sector, with just 7 winning streaks of 6 or more days in which every close was at extremely overbought levels. Before the current run, the most recent occurred in 2016.
The table below lists each of the prior streaks along with how the sector performed after each streak ended.
The first such streak came in September 1995, when Financials rose for 6 straight days during a broader stretch of 18 consecutive extremely overbought closes from August 25th through September 20th. The sector remained at least one standard deviation above its 50-DMA for 47 straight trading days, from August 15th through October 19th.
In 1997, Financials closed higher for 8 days straight, all in extreme overbought territory, for the longest streak on record. During that streak, the sector rose 8.45%, the best ever performance during one of these winning streaks in extreme overbought territory.
After these streaks break, performance over the short run has historically been weak. Zooming out, though, after a year, returns have been overwhelmingly positive except for the occurrence in December 2006, leading up to the Great Recession.
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