USMarketView

September 30, 2008

Led by the S&P500’s gain of 5.29 percent, the indices advanced from the opening, with the NASDAQ increasing 4.97 percent and the DJIA 4.68 percent at the bell. It is rare for all three indices, simultaneously, to move ahead at this rate. This has occurred just five times; and today is the first repeat since July 2002.

Back in October 1987, when these indices experienced their record percentage drop –more than twice the size of yesterday’s figures- the DJIA and the S&P500 recovered at about the same rate as today. They gained almost twice as much on the following day, and then gave back near four percent on the third day. The NASDAQ followed a slightly different path, losing two days in a row, before recovering.

For the Record

Today’s DJIA and the S&P500 increases are consistent with their past patterns. In similar circumstances, the DJIA has a 9:1 plus to minus ratio, whereas the S&P500 ratio is 9:2. However, the NASDAQ ratio of 12:15 was not helpful in anticipating today’s gain

DJIA 4.68 percent

NASDAQ… 4.97 percent

S&P500 5.29 percent

September 29, 2008

Today the NASDAQ fell -9.14 percent, suffering the worst drop in seven years. The S&P500 experienced a similar plunge, -8.79 percent. No day has been as bad as this since 2001. Moreover, the NASDAQ closed further down than today only two times in its history. This is true also for the S&P500: just two other, worse losses since 1950.

The DJIA performance, almost as bad at - 6.98 percent, however has dropped this much four other times in the past 58 years.

The House vote to deny help for the strained financial sector increased the uncertainty hanging over the financial, and Main Street, future. The nation has now entered a territory not experienced before. Even the debacle of the 1930s provides guidelines for what might happen.

Nevertheless, looking at the record and noting the next day’s performance after these indices lost just five percent, yields the following insight. The NASDAQ shows the worst prospective, falling 15 times and increasing 12 times on the following day. The S&P500 has a more favorable outlook posting only two further declines but scoring nine increases. The DJIA provides the most comfort: it moved higher in nine sessions, and fell only once, and that was by just a fraction.

DJIA -6.98 percent

NASDAQ… -9.14 percent

S&P500 -8.79 percent

September 26, 2008

The market opened lower, and, as Washington continued its debate on what to do about the liquidity crisis, prices moved higher. Nevertheless, the NASDAQ was off at the close while the S&P500 recovered enough to post a gain. But the DJIA moved forward aggressively, increasing 1.1 percent.

This pattern occurred last on February 12, and by the end of the month, 12 trading days later, the NASDAQ had fallen -1.6 percent.

There have been 21 other such days in this century, all during the 2000 to 2003 stretch of declining prices. Then the NASDAQ lost two thirds of its value.

Looking at the next day, however, while the ratio is almost even, prices rose 12 times and declined 10 times.

All the indices suffered significant declines since last Friday, a not unusual outcome in recent weeks. For the DJIA, setbacks outnumber advances in five of the last seven weeks, whereas the NASDAQ and the S&P500 fell only four times.

DJIA 1.10 percent

NASDAQ… -.15 percent

S&P500 .27 percent

September 25, 2008

The first advance of the week ended with the S&P500 up 2.04 percent and a 1.82 percent increase in the DJIA. The NASDAQ, which had already moved .11 percent higher yesterday, added another 1.43 percent today. This is the 14^th repeat of this combination this year, and the 74^th since 2000.

Yet a caution is necessary: most, if not all, of the S&P500 gains in excess of two percent occurred when prices were falling, during the 2001-2002 contraction and since the end of 2007. This pattern holds also for the DJIA; large gains are associated with long term declines. The NASDAQ situation is different. While many of these 1.43 percent and over days occurred when the trend was down, they also came when the market was rising, between 2003 and 2007.

In the past, the day following these upward moves saw the S&P500 and the DJIA post falling prices almost as often as increases. The NASDAQ, however, had more decreases –49 in all, contrasted to only 38 further gains.

For the Record.
Today’s strong results are more positive than the forecast based on the history since 2000. Both the DJIA and the S&P500 had more decreases than increases, and only the NASDAQ had more positive, than negative days.

DJIA 1.82 percent

NASDAQ… 1.43 percent

S&P500 2.04 percent

September 24, 2008

The day ended about where it closed yesterday. While the DJIA and the S&P500 finally turbed lower, the losses were an insubstantial -.27 percent and -.20 percent. Though the NASDAQ moved ahead, it was by only .11 percent.

Even though they occur often enough –about 10 percent of all closes this year, and near 20 percent since January 2000- these small changes do not yield much understanding of past motivation nor do they provide clues of future movements

This year on the following day, for example, the NASDAQ turned positive eleven times and declined seven times. However, the S&P500 had near the opposite result, with seven increases and fourteen decreases.

Moreover, today’s results do not provide much parallel with those preceding the 1987 price drop. Then, on the day after the +2/-2 series (two positive closes after two straight declines), the DJIA gained .02 percent, while the S&P500 lost -.01 percent, whereas the NASDAQ fell -2.26 percent.

DJIA -.27 percent

NASDAQ… .11 percent

S&P500 -.20 percent

September 23, 2008

After a positive start, by early afternoon, gains turned to losses, and while prices recovered some, they dropped again at the close.

We continue to show the similarity of the price pattern these last days with that occurring immediately before the precipitous decline of 1987. Today’s result maintains the parallels described over the past two days, in that there are now two negative days following two positive closes. While the losses were quite slight in 1987, on the next day they dived to minus eight percent.

But when considering only the past four days — that is, two declines after two increases– and how these developed in the 21st century, the outlook changes. There have been 24 such sets, as shown in the diagram.

Five of these came during the market decline of 2000 to 2003; another four are part of the current downturn. The other fifteen happened during the price appreciation days of 2003 to 2007. Moreover, the positive nature of this -2/+2 pattern comes through clearly when there is a temporary pause in the upward market. There are just five repeats when price shift into reverse. The other ten incidents occur when the market is solidly on its upward growth trend.

DJIA -1.47 percent

NASDAQ… -1.18 percent

S&P500 -1.57 percent

September 22, 2008

It is tempting to think that, looking at today’s losses in light of the substantial gains posted last Friday and Thursday, there is no need for concern. After all today’s closes are higher, or slightly smaller, than on Thursday. However, as suggested in Friday’s analysis, comparing the current pattern with the one that existed, and played out, before the major 1987 decline, may lead to a different, more worrisome conclusion.

Then, after two strong gains followed a huge decline, the fourth day closed with losses in the minus four percent range.

Now, we see the same pattern occurring, as these indices dropped more than three percent today –that is, the fourth day of the current series. Such a replay may not be forthcoming; nevertheless, there are no other experiences, since 1950 that are as similar, in frequency and size of the past few days, as the 1987 disaster.

DJIA -3.27 percent

NASDAQ… -4.17 percent

S&P500 -3.83 percent

September 19, 2008

The S&P500 scored its second four percent gain in a row; it now has put a 4.03 percent increase on top of yesterday’s 4.33 percent advance. Accordingly, the S&P500 erased Wednesday’s -4.71 percent loss.

Both the NASDAQ and the DJIA posted smaller, but parallel results: two large gains following a substantial loss.

A similar pattern occurred only once before: in 1987. Then all the indices dropped four days in a row, before posting two gains. At that time, the S&P500 lost more than -20 percent in one day, before gaining five percent and then ten percent in the subsequent two sessions.

At that time, after loosing about a quarter of their value, all three indices hit a bottom. (The NASDAQ’s loss was actually nearer a third.) Immediately thereafter the market recovered, and these days mark the start of the next bull phase.

While this week had two days of large losses, the last two days’ gains more or less led to positions not very different from a week ago. The NASDAQ moved up by .56 percent, the S&P500 gained .27 percent whereas the DJIA fell .56 percent .

DJIA 3.35 percent

NASDAQ… 3.40 percent

S&P500 4.03 percent

September 18, 2008

Prices reversed themselves, resulting in a strong surge that recovered almost all of the previous day’s losses. The NASDAQ and the S&P500 gained more than four percent, after experiencing declines of similar proportions yesterday.

As for the DJIA, it did almost as well; and just as it had the smallest gain today, it also experienced the smallest drop yesterday.

There are just ten sequences of these four percent gains following a four percent loss for the NASDAQ, while the S&P500 has only three.

The DJIA record shows five days, with gains larger than 3.86 percent following a four percent loss. Four of these pairs coincide with the bottoms of price cycles, while only one occurred when this index topped out, in 1989. The pattern for the S&P500, also shows that its three reversals all occurred when the index revered direction, from falling to rising prices.

While the NASDAQ typically shares this feature before its sharp and lengthy correction in 2000, during this latter period, these paired decline/recovery days came while short term upward reversals interrupted the long decline.

(Posted at 10:30 AM, September 19, delay resulting from data glitch.)

DJIA 3.86 percent

NASDAQ 4.76 percent

S&P500 4.33 percent

September 17, 2008

Today’s market soundly contradicted yesterday’s headline Has Recovery Started? The NASDAQ dropped -4.94 percent, its worst day since 2001. The other two indices did not lose as much, with the S&P500 off -4.71 percent and the DJIA down -4.06 percent.

Large drops are not unusual for the NASDAQ. Since its inception in 1971, there have been 55 closes deeper than minus four percent, 40 of which occurred in this century.

The history of the DJIA is a bit better, with losses exceeding minus four percent on just 20 days, and six since January 2000. The S&P500, however, had 17 such days, with just four in this century

(Posted at 9:15 AM, September 19, resulting from data glitch.)

DJIA -4.06 percent

NASDAQ -4.94 percent

S&P500 -4.71 percent