USMarketView

March 17, 2009

Prices closed up more than  2.4 percent for the DJIA,  3.2 percent for the S&P500, and 4.1 percent for the NASDAQ. These advances follow similar strength just three trading days ago, last Thursday; gains in excess of  5.8 percent just two days earlier, on Tuesday; and an earlier near 2.8 percent move on March 4.

Such momentum is spreading hope that the downturn’s end is in sight.  Indeed, the market has made extraordinary gains since touching the latest and deepest bottom earlier this month.

Yet searching the recent record, reveals that last October saw a similar set of gains, achieved over 20 trading days. Unfortunately that upward momentum did not continue, and prices then fell substantially, despite their  25 percent decline in the previous two months.

The situation on the day subsequent to a +1/-1/+4 run, or a pattern of an up day following a down day that occurred after four straight gains, is not definitive.  In the 20 repeats since January 1950, the DJIA shows only eight positive follow ups, while the S&P500 has twelve and the NASDAQ has thirteen gains but only seven declines on the next day.  

DJIA               2.48 percent

NASDAQ        4.14 percent

S&P500           3.21 percent

The AIG fiasco reveals the incompetence of government when it enters the world of business.  It’s the ineptitude, not the lacks ability that hurts. That President Obama directs his ‘outrage’ at AIG, rather than at the high level, cabinet officials that made it possible,  is just the next phase in the continuing mishandling of  economic affairs by Washington insiders.

Bonuses are the basis of the Wall Street remuneration system.  We can be sure that the former financial tycoon, who, as Treasury Secretary, is responsible for all features of the AIG bailout, was not unfamiliar with that bonus system. America deserves a full explanation of that neglect; for without that revelation, the country’s loss of confidence will next spread to government.

Moreover, the ongoing protests of members of Congress and of its oversight Committees reveals either their ineffectiveness or just posturing, as they now try to lock the barn door after the fact.

The financial melt down and the efforts to rescue companies ‘too big to fail,’ exposes the fact that the automatic forces of capitalism and free enterprise no longer protect our society from monopoly like abuse by deal makers.  It’s not just a scholarly refinement to emphasize that equivalent market forces no longer exist to contain inefficiencies and con schemes in our banking/credit system.  Otherwise how can one explain awarding instant bonuses for originating risky schemes, the outcomes of which could not be known for years to come? And this a standard operating procedure by the world’s major company specializing in risk analysis?

There can be no resolution of the country’s loss of confidence and is financial crisis   until government makes it clear -and obligatory- that previous perquisites, even if guaranteed, will not be distributed to those, and by those, largely responsible for our current peril And not ever from government funds intended to heal this emergency.

 March 16, 2009

As often in the past,
prices closed lower after their string of four increases in a row.  Moreover, the NASDAQ loss of  -1.92 percent was far deeper than the  -.10 percent DJIA setback.  Indeed, while the indices roamed in positive
territory until late afternoon, the DJIA fell into the red only at the very
end.  The loss posted by the S&P500
also was more moderate, at  -.35 percent.

The results on the
following day reveal a curious distinction between the pre 2000 and the years
of this century.  There is an almost
equal number of positive and negative closes in the 40 days before 2000;
however, since then, the number of increases outnumber declines by a
substantial proportion.

Of the 17 such days
since January 2000, the S&P500 increased 14 times, the DJIA 13 times and
the NASDAQ had the fewest, with 11 gains compared to 6 losses.

DJIA              
  -.10  percent

NASDAQ     
  -1.92 percent

S&P500            -.35 percent  

March 13, 2009

It could be too early to celebrate a pending market recovery if it is based on today’s fourth positive close in a row.  While 14 of these occurred in this century, and 60 between 1950 and 2000, meaning that the recent rate of 1.55 per year is larger than the earlier 1.2 per year, an analysis of the circumstances surrounding these data is less reassuring.

All 14 of the 21^st century days came in years of market decline – whereas all 60 of the 20^th century events fell in positive years.

Moreover, on the following day -like this coming Monday- eight negative days outnumber the six gainers.  Furthermore the largest increases comes to just 1.17 percent, while three of the losing days fell more than minus one percent, and one, the NASDAQ result, dropped  -3.90 percent.

DJIA                .75  percent

NASDAQ        .38 percent

S&P500           .77 percent

March 12, 2009

A sharp rebound characterizes the last three days, with today’s action pushing the S&P500 up more than four percent.  The NASDAQ scored a  3.92 percent move, while the DJIA, in third place, nevertheless soared  3.46 percent.

With today’s triple three-day gain, the record shows  48 such events since the turn of the century.  Moreover, the vast majority of these –some three quarters of the total- occurred when the market was moving higher, and values were larger on December 31 than on the first trading day of the year. 

However, the trend failed to continue, on the next day, for the NASDAQ and the S&P500. The NASDAQ fell 28 times, to rising 19 times, on the following day, while the S&P500 had 25 negative closes to 22 positives.  Only the DJIA came on stronger, with 27 increases compared to 20 decreases.

Yet a surprising statistic is that the average daily gain in those 11 bad years is substantially larger than in the 36 good years.  Indeed the average daily change was negative, compared to the positive average gain in those weak years.

DJIA                3.46  percent

NASDAQ        3.97 percent

S&P500           4.07 percent

March 11, 2009

It was a modest day for the DJIA and the S&P500, increasing just  .06 percent and  .24 percent.  The NASDAQ, however, moved higher by  .98 percent. These results, nevertheless, were welcome.  First because today’s close is the second positive day in a road.  This is an improvement over the up-then-down circumstances ruling the market since last Thursday.

The second favorable aspect of this close is that the three indices moved up, albeit by small amounts.  Yesterday’s analysis noted that the large gains have been followed by sharp turn arounds on the following day.  This was not the case in today’s market:  the minor gains obviously feel better than losses.

Looking at the decrease in values since the October 2007 top, reveals that while prices are still falling, the rte of change seems to be on a moderating trend.  The figure below relates the daily closing price of each index as a proportion of its market top on October 2007.  It shows a relatively mild pattern at the beginning of last year that was succeeded by a severe decline.  This, however, became less serious toward the end of last year.  And while the downward path has become steeper earlier in 2009, it has turned up in recent days.

DJIA                .06  percent

NASDAQ        .98 percent

S&P500           .24 percent

March 10, 2009

With the NASDAQ jumping  7.07 percent to post its 14^th largest gain ever, the DJIA and the S&P500 followed suit.  At  6.37 percent, the S&P500’s increase ranks as its eighth highest; while the DJIA achieved the same status by rising  5.80 percent.

Today’s achievement, however, is even more rare; for gains of such magnitude together, occurred just three other times since 1950.  Two occurred last October, while the other dates back to 1987.  Yet this landmark does not merit outright celebration, once we consider other factors accompanying these dates.  First, the October 2008 incidents came just before the averages started their current steep dive.  The 1987 also came when the trend was down, although at that time prices were reaching their bottom.

The other  feature deserving caution is what happened to prices on the following day:  The NASDAQ moved higher just once, and fell  -3.54 percent and  -4.49 percent the other times, while the DJIA and the S&P500 declined on all three days, and both dropped almost  four percent once.

Additionally, the daily up and down seesaw continues, with today’s gains accounting for the fifth reversal in prices in the last five days.  The infrequency of such runs is stunning, with only 132 such chains in the near 15,000 trading days since 1950. 

DJIA                5.80  percent

NASDAQ        7.07 percent

S&P500           6.37 percent

 March 9, 2009

Another day of direction change resulted in falling prices, as the NASDAQ lost -1.95 percent, the DJIA  -1.21 percent and the S&P500  -1.00 percent, as the market reversed itself for the fourth day in a row. 

A newspaper headline today posed the question if the DJIA will fall as far as 5000; that is, another 1,500 points, or about 25 percent.  If that target were to become a reality, it6 would mean that the decline would have cut almost two thirds of the DJIA value at its October top of 14,164.53. 

At this point, the DJIA, at 1116,547, is worth  46.2 percent of that peak value;  this is about the same ratio of peak price that existed, at this stage, of the 1929 drop.  However, that was not the bottom of the earlier cycle; it fell successively to 32 percent, then 23 percent, and 19 percent, before it reached bottom at just 10.8 percent of its peak value in 1929.

Moreover, the S&P500 decline, as well as the NASDAQ drop, is deeper, at this point, than the DJIA. The NASDAQ closed today at 45.1 percent of its 2007 price, while the S&P500 has fallen even further, to 43.2 percent of its 2007 top.

DJIA                -1.21 percent

NASDAQ        -1.95 percent

S&P500           -1.00 percent

March 6, 2009

The session closed barely on the plus side for the DJIA and the S&P500 after being in the red most of the day.  The NASDAQ had the same pattern, but failed to recover to yesterday’s close, dropping just  -.44 percent. In summarizing the past week, today’s result help to believe that it was not too bad; two huge drops, one substantial gain, and two days off less than minus one percent for the NASDAQ – and only one day less than minus one percent for the DJIA and the S&PP500.

Moreover, the evidence of today’s S&P500 pattern, suggests that perhaps the end of this downturn “is around the corner.” The index repeated this pattern of    +1/-1/+1/-5  twice in 2002, at the bottom of that bear market.  However, there was a third occasion, when prices slowed their upward momentum during that recovery.

Yesterday’s conjecture that, based on past records of days with identical patterns, of an even chance of prices rising or falling today, is consistent in a way with today’s result of the indices clustered around zero change.

As for Monday, history does not offer much guidance, since there has been only one other day, in 1976, that mirrors today’s pattern.  That result shows the three indices rising on the following day, but by just about a half a percent.

DJIA               .49 percent

NASDAQ      -.44 percent

S&P500          .12 percent

March 5, 2009

As if to make up for Wednesday’s two and some percent advances, prices broke sharply, from the opening bell.  At the close, the indices were down more than four percent. This result is consistent with the past: then losses exceeded gains by a ratio of two to one, one the day after finishing with a  +1/-5 pattern – that is an up-tick after five straight losing days.

Today’s pattern of -1/+1/-5, or a loss following a gain after five down days in a row, has been posted 51 times since 1950, and seven times since January 2000. Four of these more recent events occurred in years when prices fell; the other three came in positive years.  Moreover, the NASDAQ and the S&P500 median declines in those bad years were about twice as deep as in the good years.

On the following day in those seven years, all the indices rose four times and fell three times.  However, in the down years there was an even number –two- of positive and negative days, while the up years had only one loss on the next day while scoring two positive days.

DJIA                -4.09 percent

NASDAQ        -4.00 percent

S&P500           -4.25 percent