USMarketView

February 26, 2009

Prices fell for the second day in a row, closing just about the same level as three days ago, on Monday. So the topsy-turvy market,  one step up and several steps down continues.

At this stage the current decline, which started in October 2007, is substantially below the previous bear market that topped out on March 23, 2003.  The diagram below shows these two cycles, with the current downturn’s top positioned at the peak of the earlier

Our present position is substantially below the 2003 cycle, and yet the downturn today is 348 trading days old.  Considering that the earlier cycle took 742 days from peak to trough, it is not difficult to assume that at this point, we are only halfway through the correction. 

The action may change; prices might return to their October 2007 level much sooner, and this projection scenario will turn out to be false and too negative.  Nevertheless, such simulations  provide meaningful yardsticks, as we need, and try, to come to grips with a significant downturn, and when and where it will end.

DJIA                   -1.22  percent

NASDAQ…       -2.38  percent

S&P500              -1.58  percent    

February 25, 2009

The final bell found values lower than the day before as the indices failed to maintain their momentum.  Such ricochets, with prices falling after they rose the day before are not uncommon. The record shows 421 of these since 1950, with 180 occurring after January 2000.

While their frequency is somewhat greater in years of falling prices, the differential is not very large at all: while 2.73 percent appeared when the market ended higher in December than in January.3.05 percent came in down years.

Moreover, searching for this pattern when the day before action yielded gains as large as yesterday, finds just eight such days.  While only one of these occurred in an up market, in 1998, six have come since October 2008.  . 

In the past, substantial losses came on the following day, with the NASDAQ and the S&P500 dropping five times out of eight, while the DJIA suffered six losses.

DJIA                   -1.09  percent

NASDAQ…       -1.14  percent

S&P500              -1.07  percent    

February 24, 2009

Prices finally moved higher, and with a big bang, scoring the best advance since January 21, some 23 trading days ago.  That earlier close also came after sharp declines on the day before; yet today’s recovery outdid January ‘sadvance. Then, even though prices rose more than four percent, the previous day’s losses were even larger. By contrast, today’s gains exceed yesterday’s retreat, except for the DJIA, which missed the break-even point by just  .09 percent.

Let’s turn to compare the current slump with the 1929 crash using the graph below.  It shows each day’s DJIA closing price as a proportion of its peak price, on September 3, 1929 and on October 7, 2007. 

First, prices fell more drastically, and recovered more, at the beginning of the decline, in 1929 than in 2007.  Then, though it appears that the current downturn is catching up, today’s price is 52 percent of its 2007 top, while at the same stage,  in the earlier cycle, prices were only 44 percent of the 1929 high.

The current decline, now in its 344^th day, is at the point where, in 1929, the drop still had a further 370 trading days to go before reaching its lowest point.  That is, in terms of 1929, today’s market is less than halfway  -48 percent- through the earlier crash’s life.

DJIA                   3.32  percent

NASDAQ…       3.90  percent

S&P500              4.01  percent     

February 23, 2009

Losses went from  -3.41 percent for the DJIA to  -3.71 percent for the NASDAQ as the market fell for the sixth day in a row.  October 9, 2008 was the last time we faced this long a slide. But then, the markdowns were much smaller –from just -.83 percent for the NASDAQ to minus two percent for the DJIA.  Indeed, none of the five other six day negative runs generated a loss anywhere near as deep as today.

Moreover on the following day in 2008, prices dropped even further, ranging from  -5.5 percent for the NASDAQ to  -7.6 percent for the S&P500.  Yet, in the four earlier six-day declines, between 1978 and 1991, the regressions were much shallower, and prices even rose twice on the following days.

There could be some good news for the future though, if the e the DJIA repeats the price path of those four earlier days.  Consider the graph below, which shows the DJIA closing prices between 1977 and 1992.  The vertical lines indicate these four earlier six-day negative runs.  Clearly, the erosion of values slowed, and prices even increased in the following days, after the market suffered these strings of losses.

DJIA                   -3.41  percent

NASDAQ…       -3.71  percent

S&P500              -3.47  percent    

February 20, 2009

With Monday’s market closed for Presidents’ Day, the string of daily losses extends back to last Friday, the 13^th, as the NASDAQ came in just  .11 percent on the negative side, while the S&P500 gave back  -1.14 percent and the DJIA declined  -1.34 percent.  In treating this close as five successive losses for all three indices, it considers Wednesday’s  .04 percent gain for the DJIA- so close to zero- as a negative change.

In the past, there were only 16 such days, with five occurring since January 2000.  Moreover, these are spread almost equally between years in which prices fell -seven times- and prices appreciated- nine times.

It is not surprising that the history of the following day has a preponderance of gains.  After all, continuous daily changes in direction dominate the market’s character, whether the trend has prices rising or falling. 

Thus, the DJIA has 11 positive days and only five negatives on the day after prices fell five days in a row.  Both the NASDAQ and the S&P500 are close behind, scoring 10 gains and only 6 losses on the next trading day.

DJIA              -1.34  percent

NASDAQ          -.11  percent

S&P500         -1.14  percent

February 19, 2009

The NASDAQ and the S&P500 moved further down, as both indices recorded their fourth negative day in a row.  The DJIA also declined, but since it moved a bit higher yesterday, by just  .04 percent, its count was interrupted, and restarted today at minus one.

Taking today’s pattern at face value, that is, four down days for the NASDAQ and the S&P500, and only one down day for the DJIA, then we see only two incidents like this since 1950.  One occurred in April 1985 while the other, more recent incident, was last September.  The 2008 decline was quite sharp, with each index losing about minus three percent. 

On the following days, the DJIA and the S&P500 rose twice but gains were limited to the range of  .04 percent to .44 percent. 

However, the results are considerably more optimistic when all three indices  fall four days in a row–that is, allowing the DJIA to fall, rather than rise  .04 percent, yesterday.  Of the 14 such days since January 2000, the NASDAQ rose nine times on the following day while the DJIA and the S&P500 increased eight times and fell only six times.

DJIA              -1.19  percent

NASDAQ      -1.71  percent

S&P500         -1.20  percent

February 18, 2009

Prices moved up and down, over and under the zero change line.  In the end, they clustered in the no change zone, with the DJIA up by only  .04 percent, and the S&P500 down  -.10 percent  while the NASDAQ was the biggest mover of the day, losing  -.18 percent.  Days with this little variation are rare; only 11 such closes are in this century, while the other 21 reach back only to 1973.  Moreover, these were more common in years with rising prices than falling prices, by a ratio of 20:12.

The combination of three straight losses for the NASDAQ and the S&P500, with the DJIA moving higher does not happen often.  Indeed just 15 of these closes exist, with the earliest one in 1981 and the latest occurring just last September.  Of course, with today’s minute changes, there is not much meaning to this count.

There is a preponderance of positive movement in the past on the following day.  The NASDAQ moved higher 23 times and fell on only 9 days.  The S&P500 history is less robust, with 18 gains and 14 losses on the next day, while the DJIA has an even number of gains and losses.

DJIA              .04  percent

NASDAQ     -.18  percent

S&P500        -.10  percent

February 17, 2009

It was just a week ago that the three indices dropped more than four percent; today the losses were a bit smaller.  The DJIA decline was just  - 3.79 percent, whereas the S&P500 was off  -4.56 percent and the NASDAQ retreated  -4.15 percent.

Ranking today’s declines by size, it was the 21^st worst showing for the S&P500, the 41^st for the DJIA and the 69^th for the NASDAQ.  Except for the S&P500, these were not as high up the list as a week ago.

Moreover, while this was the second loss in a row for the NASDAQ and the S&P500, today marked the third straight decline for the DJIA.  This combination occurred only 24 times in our record, which goes back to 1950.  Yet none came before 1979, and only five were earlier than 1991.  The frequency has increased since January 2000, with 12 such days in this century, and five during the last 11 months.

In the past, prices continued down on the following day, more often that they recovered.  The DJIA has the best showing with 11 increases compared to 12 decreases.  The S&P500, however, has only 9 gains but 14 declines on the next day, while the NASDAQ has 15 declines and only 8 increases.  

DJIA              -4.62  percent

NASDAQ       -4.15  percent

S&P500          -4.56  percent

February 13, 2009

The best that can be said of today’s market is that at least the losses were far smaller than the four, near five, percent drop on Tuesday.  While the NASDAQ was off by  -.40 percent, the DJIA fell -1.04 percent and the S&P500 retreated   -1.00  percent. 

Looking at all days when similar closes occurred, and widening the range to include all losses between zero and  -1.04 percent for the DJIA; between zero and  - 1.00 percent for the S&P500, and between zero and  -40 percent for the NASDAQ, we find the total comes to 754  out of the nearly 15,000  trading days since January 1950.  Of these, 114 occurred in this century.  The frequency is the same for both periods, about five percent

The striking peculiarity of these 114 closes is they most often took place when the market was rising.   The diagram below, which plots only these 114 closes, illustrates this relationship. The first segment, between January 2000 and February 2003, when prices were in decline, has 16 dots indicating days when all indices fell, in today’s range.  The next period ends with the bull market of 2003; the diagram shows 90 such closes, while the final portion, which covers the decline from October 2007 to day, has 8 such days.

Of course, the visual evidence shows that this negative pattern occurs more often in rising, than in falling markets.  Yet to emphasize this conclusion, here are the actual ratios: 16 of 723 days in period 1 translate to 2.2 percent and 8 of 322 days in period 3 is 3.5 percent.  These ratios are much smaller than the 90 of 1186 days, or 7.6 percent, of these occurrences when values are in an uptrend. 

DJIA              -1.04  percent

NASDAQ       -.40  percent

S&P500          -1.00  percent

February 12, 2009

The NASDAQ moved into the positive toward the end of the day, and gained  .73 percent.  The S&P500 was in the red until almost the closing bell but then just managed to go higher by  .18 percent.  While the DJIA followed the same path, its recovery fell short, closing down by just  -.09 percent.

Only seven other days experienced this pattern of changes. Two came in 1972 and the other five were in the 1990’s, with this close being the first since July 1999.  One note of optimism comes from this comparison: all of these earlier instances

In considering this close in its position of two days after the greater than four percent losses of Tuesday, its rank is at the bottom, showing the least variability of the 17 earlier occurrences. Some of those two-days-after changes went from near plus twelve percent to minus seven percent.

DJIA              -.09  percent

NASDAQ       .73  percent

S&P500          .18  percent