Market Takes Another Hit

January 15, 2008


We center our attention not on today’s steep declines in excess of minus two percent, but on the pattern of the last eight trading days. These show four significant drops, well over minus one percent.

Even two reversals, separated by one positive day, are a rare event: happening just six times for the DJIA, 9 times for the S&P500, and some 48 days for the NASDAQ. (See the table below.)

 

recen-large-declines.gif

Going back three more days, reveals that this occurred nine times for the NASDAQ and just two or three times for the other two indices. Moreover, with only one exception, this sequence of major down days has not been seen since 2002.

The record shows that the frequency and magnitude of these declines have been associated with a steep falling off in these security prices. The diagram below reveals the association of daily drops in excess of minus two percent and the decrease in the daily closing price of the S&P500.

It is clear that in the past, such happenings predated significant erosion in these indices.

3-sp500-when-changes-are-less-than-2-pct.gif

The diagram’s yellow line shows the daily closing price of the S&P500. The yellow circle indicates the closing price when its daily decline is two percent or deeper, indicated by the red triangle.

Notice when the market started its sustained growth in 2003 the yellow line climbs uninterrupted by any daily decline of two percent.

Revised January 16, qt 12:15 PM

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