USMarketView

March 31, 2009

Strong from the opening bell, prices maintained their improvements with the NASDAQ gaining  1.78 percent, the S&P500 1.31 percent while the DJIA closed up  1.16 percent.  These gains are more than minimal.  Only 8.7 percent of all positive NASDAQ closes exceed today’s increase, and no more than  11 percent of all positive S&P500 days are larger.

Yet two negative readings in a row, after two successive gains are also rare – in fact there are just 131 instances where declines off these indices lasted for three days.  Moreover, the proportion of these three successive declines is almost identical in bad and in good years.

As for the following day, declines occur more often than another increase. The NASDAQ’s record shows twice as many reversals as further increases, while the DJIA, the best performer managed just an even number of next day gains.

DJIA                1.16 percent

NASDAQ        1.78 percent

S&P500           1.31 percent

March 30, 2009

Today’s decline, the second in two trading days trimmed values  by  -3.48 percent for the S&P500,  -3.27 percent for the DJIA and  -2.81 percent for the NASDAQ.  These two losses in a row follow the two straight gains of last Wednesday and Thursday.

This sequence of  -2/+2 trading days is quite rare, with only seven such occurrences overall, and none before the middle of 1986.  The first two, in 1986 and 1991, marked the tops of periods of growth.  Yet prices did not continue to decline; instead, they marked a pause, after which values continued to increase.

However, the following three occurrences are the focus of this analysis, because the first one coincides with the bottom of the 2000-2003 bear market. The diagram below indicates this very clearly.  In addition, the next two incidents designate merely short respites from the ongoing bull market that did not top out until October 2007.

DJIA               - 3.27 percent

NASDAQ        -2.81 percent

S&P500           -3.48 percent

March 27, 2009

The market continued its tug of war between the bulls and bears, as the substantial advances of yesterday, as well as Monday, were reversed.  This reaction is not unusual; as described in the October 26 analysis.  The preponderance of changes in the past, following Thursday’s large increase, has been negative.  Of course, history also shows 16 advances, but that result failed to repeat today.

Moreover, these earlier strong days in this century, are concentrated in declining, rather than, rising markets.  This evidence does not support an early end to the long decline.  Indeed, at this stage of the last bear cycle, from 2000 to 2003, falling prices were far from over; the recovery was not to come for at least another year.

The chart below illustrates this comparison.  It superimposes the daily closing prices of the S&P500 of the previous cycle over the current time path.  The diagram is constructed so that the peak of the earlier cycle coincides with the peak of this one.

Of course it is just a premise that the striking similarity so far will continue in the future … and that the turn around is far from imminent.  It is equally plausible to conclude that the current cycle’s upturn will continue, and join the earlier cycles’ recovery without significant delay.

These twin, opposite inferences, however, do not mitigate the importance and usefulness of historical evidence.  Rather, they provide meaningful insights to our analysis of what will happen in the future.

DJIA                  -1.87  percent

NASDAQ          -2.63  percent

S&P500             -2.03  percent

March 26, 2009

To put today’s strong action in perspective, remember that only 35 other closes in this century were as large.  The DJIA up  2.75 percent, the NASDAQ rising  3.80 percent, and the S&P500 increasing  2.33 percent together in one session was even more extraordinary before 2000 – with just 16 in those 50 years.  (The NASDAQ had only eight in its shorter record.)

However, a closer look at the record, and specifically at the circumstances surrounding these events, indicates that caution is in order. While it is true that on four of the following days, prices rose as much if not more, most, if not all of these increases occurred not when the market was in a rising trend but rather in times of severe correction.

The diagram below shows the S&P500 closing prices since January 2000.  It is clear that these 35 super strong days, marked with an o, are clustered at times of decline.  It is clear that they do not identify, nor precede rising prices.  So even if today’s results are welcome switch from the many recent losing days, they may foretell worse times for the future.

In the past, since 2000, declines dominated the following day: the three indices were together in scoring only 16 additional advances –including the large changes described above- and falling on the remaining 19 days.

DJIA                  2.25  percent

NASDAQ          3.60  percent

S&P500             2.33  percent

March 25, 2009

Today was another repeat of the recent up-and-down pattern, that prevent a continuation of an upward move indicating that the recovery of prices is finally at hand.  Only 42 sets of such a series exist that show the identical repeats of the past nine days; moreover, only twelve of these are in this century.

As noted several times before, most of these clusters appear in periods of price declines.  The diagram below, showing the daily closing prices of the DJIA, has 12 vertical lines identifying those occasions in the period between January 2000 and this week.  There may be differences of interpretation, but except for the five events clustered in the 2003 recovery, the other seven occur when the upward momentum is faltering, or, indeed, has already turned negative.

Negative days outnumber the positive ones on the following day.  The S&P500 managed only three up closes and had nine declines.  These ranged from near zero to  -2.6 percent; four were deeper than minus one percent.  The NASDAQ and the DJIA have somewhat better showings, yet these managed to go higher on only four and five occasions.

DJIA                 1.17  percent

NASDAQ           .82  percent

S&P500              .94 percent

March 24, 2009

Prices backed off today, as is usual, following a huge gain; the NASDAQ gave back  -2.40 percent, while the S&P500 declined  -2.02 percent and the DJIA lost  -1.49 percent.  With a record of only three gains exceeding yesterday’s increases, the past record reveals losses dominate the following day.  Indeed, only one positive close exists, and that is the .47 percent increase for the NASDAQ last October.  Whereas the losses ranged from  -.20 percent to -4.49 percent on the other trading days.

Hence, today’s performance is more typical than rare, and ought not to cause extraordinary alarm.

If the recent history of these indices is a guide, then the expectations for tomorrow are less certain.  While the positive days outnumber the losing days, the difference is narrow;  273 gains compared to 215 losses.  However, the range of positive changes -as large as  7.94 percent for the NASDAQ- is larger than the losses, which go as deep as  -6.20 percent.

DJIA                 -1.49  percent

NASDAQ         -2.40  percent

S&P500            -2.02  percent

March 23, 2009

The DJIA, rose  6.84 percent to score its fourth largest increase in 60 years, and while the S&P500 beat that by increasing  7.09 percent, but this rank as only its fifth highest daily move.  The NASDAQ  moved  6.76 percent higher, which ranks as 15^th from the top.

It’s good news, of course, when the indices move higher by large increments, and especially in view of the up and down nature of daily changes, despite the similar, but somewhat larger advance of March 9, just some ten trading days ago.  Yet it is not appropriate to consider these increases as proof positive that the market’s decline is about to end.

Just about half of the DJIA’s top gains, in the past, occurred when the direction of the market down.  Indeed, its two strongest days came during this bear market, in October of last year, while its third largest close was during the 1987 decline.  Similar conclusions apply to the NASDAQ and the S&P500; their strongest days come while prices are retreating; they typically coincide with a strong, but temporary and quite short reactions to a downward trend of prices.

DJIA                 6.84  percent

NASDAQ         6.76  percent

S&P500           7.08 percent

March 20, 2009

Prices continuing to repeat their pattern of declines after days of strength frustrate market watchers.  These reversals upset their need to identify
the bottom turning point of the bear market that started in October 2007.  Yet the significant price erosions of the past two or three weeks, on the heels of strong appreciation need not signal that recovery is not imminent.

Using the 2002 turnaround as an example -because it is the most recent recovery from a lengthy decline- permits the inference that the swing in prices is a characteristic of market turnarounds.  Consider the diagram below; it shows that prices followed a similar seesaw before finally beginning their long-term growth path.

That trough had three distinctive phases, with 55 trading days between the initial low, and 104 days of further ups anddowns.  Only then did prices begin their five-year long advance.

The current situation is not a precise match of the 2002 path, since 81 trading days have elapsed between the S&P500 previous bottom of 752.44 on November 20.  Moreover, today’s close of 768.54 remains above that low, whereas in the 2002 situation, prices were at 97 percent of the earlier low.  Nevertheless, this parallel deserves attention.

SORRY FOR THE DELAY AND ROUGH PRESENTATION  -  INTERNET  ALMOST OUT OF RANGE!

DJIA           -1.15  percent

NASDAQ   -1.77  percent

S&P500      -1.98 percent

March 19, 2009

After rising two successive days, prices declined, from -.52 percent for the NASDAQ and  -1.15 percent for the DJIA to – 1.30 percent for the S&P500.  Moreover, such negative days, while not in the majority, occur often, after the current closing pattern of -1/+2 – that is, a negative day that follows two positive days.

In this century, of the 166 such days, only 92 were positive, while 74 declined.  In years when the indices declined, there were 33 losses, not many less than the 39 positive days. The record for positive years does not favor the gainers much more: there were 53 days where prices increased, not many more than the 41 days of falling prices.

DJIA               -1.15 percent

NASDAQ        - .52 percent

S&P500          -1.30 percent

March 18, 2009

With the DJIA rising  1.23 percent, the NASDAQ 1.99 percent and the S&P500  2.08 percent, the recovery is sustaining its advance from the previous low of March 9.  Indeed, while that is just 9 trading days ago, the closing prices have increased more than 14 percent for the DJIA, while the NASDAQ and the S&P500 have gained in excess of  17 percent.

This pattern closely resembles the profile of the previous recovery in 2002. Then the increases at the bottom came to  16 percent for the S&P500 and 17 percent for the DJIA and the NASDAQ, in the nine days before the turn-up began.

Of course, then, and always, the advances was not continuous nor without interruption.  However, looking at that trough from the vantage of time, it clearly marked the end of that bear market and the beginning of the new, up cycle.

DJIA               1.23 percent

NASDAQ        1.99 percent

S&P500           2.08 percent