USMarketView

December 31, 2008

The market scored impressive increases on the last day of this year.  The NASDAQ up by  1.70 percent beat all December 31’s in its history.  The S&P500 did well, but at  1.42 percent, fell behind the more than two percent increase on the last day of 1974.  The DJIA performance was identical.  Note that the 1974 record is similar to this year:  prices on December 31 declined from the last day of the previous year.

Today’s results are in line with the historical record of these indices:  they closed higher in this negative year, as they have so often done in the past.  This is the identical conclusion reached yesterday, when the indices’ robust performance continued the price change patterns of past years.

Turning to Friday, the first trading day of the year, one can look ahead to increases occurring about as often as decreases.  This has been the pattern since 1950 (1972 for the NASDAQ), regardless of whether the market was coming from a year of growth or of decline.

DJIA                 1.25  percent

NASDAQ         1.70  percent

S&P500            1.42  percent

December 30, 2008

Today’s strong showing moved all indices higher, with the NASDAQ leading the market with a 2.87 percent increase.  It scored the largest rise ever in a negative growth year, on this penultimate trading day, outdistancing the previous record of  1.71 percent set in 1973.

The DJIA and the S&P500, posted a similar record, since these indices have never moved as much as one percent, on this day, since 1953.

Thus the summary we posted on December 28, citing the fact that in losing years, all three indices move higher more often than they fall, on the second-to-the-last trading day of the year, was useful in anticipating today’s market action.

Tomorrow will be 2008’s last trading day; in past years, when prices retreated, all three indices moved higher twice as often as they fell.  Yet, in terms of the last day’s rate of change, there as many increases greater than one percent as decreases of less than minus one percent.  The NASDAQ however, has two losses deeper than minus one percent but only one gain higher than plus one percent.

DJIA                 2.17  percent

NASDAQ         2.87  percent

S&P500            2.44  percent

December 29, 2008

While all the indices declines today, the -1.3 percent fall of the NASDAQ was more than triple the fall in the DJIA and the S&P500.  Moreover, on this third-to-the-last trading day of the year, the NASDAQ has declined near 66 percent of the time, whereas the other two indices dropped slightly more than half of the time.

Yet when disaggregating the changes on these days into years when the market gained and when the marked tumbled, as it did in 2008,  the DJIA and the S&P500 had about 1.5 times as many declines as increases, but the NASDAQ fell only 80 percent as often as in good years.

As for the second-to-the-last-trading day of the year, in the past these indices have risen more often than fallen.  The NASDAQ has the most promising record for negative years such as 2008: only a third as many decreases as increases for this day.  The DJIA and the S&P500, however, have about a record of near 60 percent as many declines in years such as this compared to years when the market moved higher.

DJIA                 -.37  percent

NASDAQ        -1.30 percent

S&P500             -.39  percent

December 23, 2008

With just two days to go until Christmas Day, the market retreated; it was the second decline in as many days.  Since 1950, there have been as many up days as down days on the 23^rd of December for the DJIA and for the S&P500.  The NASDAQ, on the other hand, was off 1.5 times as it rose.

As for December 24, the record is quite different: the DJIA and the S&P500 had twice as many gains as losses, while the NASDAQ had almost an even score.

DJIA                 -1.18  percent

NASDAQ          -.71 percent

S&P500             -.97  percent

December 22, 2008

Prices fell three trading days before Christmas, for only the second time since 2000.  Whereas last year, on this day, the market advanced more than 1.5 percent, this year there were sizable declines.

Moreover, in the down year of 2006, the decreases amounted to about a half a percent, much less than today’s near two percent losses.

December 19, 2008

Price changes although quite small were not uniform today.  The DJIA dropped by  -.30 percent, whereas the S&P500 moved up, but only by  .29 percent.   The NASDAQ posted the largest change, increasing some  .77 percent.

Changes as small as today’s DJIA and S&P500 are rare.  This year, for example, the S&P500 has recorded only 20 closes in the range from zero to  .25 percent.  These represent just eight percent of the 246 trading days of 2008.  In other years, however, these amounted to about 16 percent.

The DJIA history is similar:  22 days in 2008 with changes in the  -.3 percent to 0 percent, accounting for nine percent of all trades.  This compares to 16 percent of the trading days since 1950.

While the NASDAQ increase of  .77 percent –being larger- occurred more frequently, accounting for almost 39 percent of all trades since 1950, this pattern is consistent with the other two indices.  In 2008, trades in the  0-.77 percent range were just half of this figure, at  16 percent.

That means all indices share the experience that small daily changes are running at just half the rate of other years.

DJIA                 -.30  percent

NASDAQ          .77  percent

S&P500             .25  percent

December 18, 2008

The market fell today, for the second day in a row.  The losses range from the smallest, the NASDAQ’s  -1.71 percent, the  -2.12 percent for the S&P500, to the deepest, -2.49 percent for the DJIA.  Yet these declines are not nearly as deep as many others over the course of the past 20 days.

That period saw an even number –ten each– of down and up days.  Yet the NASDAQ posted seven losses worse than today’s; the S&P500 had six worse losses and the DJIA five.

This 20-day period is significant, since it reaches to, and includes, the last time these indices fell two days in a row.  That is one comparison. 

Yet what happened to the market on November 19 and 20 provides the more important insight. Prices turned around then, reaching their lowest so far in this cycle, and started heading up.  Since prices do not move continuously without reversals, neither when rising nor when falling, the loss pattern of the past two days might signal a return of the recovery, started on November 19 and 20.

DJIA                 -2.49  percent

NASDAQ         -1.71  percent

S&P500            -2.12  percent

December 17, 2008

More often than not, prices continue to increase on the day following a cut of the fed funds rate; today, however, the indices turned down.

The NASDAQ, which had 18 increases to just 9 declines, and until today, scored twice as many gains as losses, dropped  -.67 percent.  The other two indices, with their  15 positive to 12 negative history, also declined, with the DJIA falling  -1.12 percent and the S&P500 off  -.96 percent.

Over the last 27 fed fund rate cuts since 1995, the two day after performance for the DJIA is 15 ups versus 12 downs.  The NASDAQ, however, has a more encouraging record with a plus 16 and minus 11 price change ratio.  Finally, the S&P500 with only a moderate adjustment from its day after performance has 16 higher and 11 lower price changes on the second day following a fed funds rate cut.

DJIA            -1.12  percent

NASDAQ      -.67  percent

S&P500         -.96  percent

December 16, 2008

Spurred by the Fed marking down the fed fund rate to a never before seen 0.0 percent, prices accelerated.  By the final bell, the NASDAQ and the S&P500 gained more than five percent, while the laggard DJIA rose over four percent.

These price increases are far from usual: since 2000, index prices have fallen as well as risen in response to the Fed’s announcements.  Moreover, the average price decrease often is greater than the average index increase.  Nevertheless, the number of positive price reactions exceeds the declines in a ratio of 9:6. 

The record for the day following is not as encouraging. There are an equal number of rising and falling closes; however, the amount of the price declines is substantially –from two to five times- greater than the average increase.

Yet with the current economic situation and, importantly, with a leadership change that uses straight and clear language in announcing policy decisions, market decisions more optimistic than in the past may well result in stronger prices.

For example, consider the significantly strong and unambiguous language of this paragraph from today’s Fed announcement:

               The Federal Reserve will employ all available tools to promote the resumption of sustainable economic growth and to preserve price stability.  In particular, the Committee anticipates that weak economic conditions are likely to warrant exceptionally low levels of the federal funds rate for some time.

DJIA              4.20  percent

NASDAQ      5.41  percent

S&P500         5.13  percent

December 15, 2008

The DJIA experienced the identical percentage drop that it gained in the last session, on Friday, while the NASDAQ percentage loss was slightly smaller, and the S&P500’s percentage decline was just short of double its increase.

Note that today’s decline, continues the up and down pattern of the previous four days: prices changed direction each day, since last Monday.  Moreover, this latest seesaw marks the seventh such daily reversals this year.

As for the following day, consider the record since January 2000: these indices experienced 35 down/up for five days pattern.  The NASDAQ fell  21 times on the following day, while moving higher only 14 times.  The S&P500 has a 19 further down and 16 up record.  The DJIA is the only index with more positive than negative follow-ups; however, the edge is just one, having 18 up days and 17 down days.

DJIA              -.75  percent

NASDAQ     -2.10  percent

S&P500        -1.27  percent