USMarketView

April 30, 2009

In a repeat of the Wednesday action of last week, the DJIA and the S&P500 lost ground, whereas the NASDAQ moved up.  Yet these changes, just like last week, materialized only at the end of the day; earlier all three indices had been on the advance.  At the bell, the NASDAQ rose  .31 percent and the S&P500 lost  -.1 percent and the DJIA was off  -.22 percent. 

There have been 17 other closes with this pattern, when we limit the analysis to yesterday and today. The median changes on those days are  .18 percent for the NASDAQ,  -.11 percent for the S&P500 and  -.29 percent for the DJIA.  Obviously, today’s closes are in line with this record. 

In the following session, the data show that increases outnumbered declines in the past, by more than 2:1.  Assessing yesterday’s history based forecast for this session- losses more often than gains- there is a good fit.  With the actual changes not far from zero, however, the estimate was not very helpful.

Now that the market is recovering from it low point, the focus turns to when will prices turn around.  Looking at the 2000/2003 cycle s as a guide yields two possible scenarios.  The total decline from the October 2007 high is now 55.8 percent. At this point, the 2000/2003 cycle stood at 71.4 percent of its top.  The figure below shows this difference.

So that perspective indicates the turn around is not far away.  Indeed, prices are already above recent lows.

On the other hand, considering that the duration of the previous cycle is far longer than our current position creates doubts that the upswing is in the offing.

However, these are just two alternatives, based on the path.  In fact, the actual outcome may have no relationship to the 2000/2003 cycle.

DJIA                  -.22 percent

NASDAQ           .31 percent

S&P500              -.10  percent

April 29, 2009

Strong from the beginning, prices survived the GDP’s substantial drop.  At the close, the NASDAQ was up 2.28 percent, followed closely by the S&P500’s  2.16 percent and the DJIA’s  2.12 percent.

This first up-tick follows two straight declines.  Looking at the history of this  1/-2  pattern reveals 245 such closes since 1950, 81 of which occurred in this century.  What’s more, only 12 of these latter days scored increases as great as or greater than today’s 2 percent.

This strength, however, need not indicate we are at the bottom. Four of the greater than two percent days came at the beginning of this current bear market.  October 2008 had four of these closes, with gains larger than ten percent.  Yet, rather than further appreciation, prices were just at the beginning of this huge decline.

Yesterday’s post failed to spotlight today’s potential gains; instead, by focusing on last Wednesday’s increase of the NASDAQ while the other two indices declined, it described the patterns following that disparate close. 

In the past, the next day following this 1/-2  pattern, achieved gains at more than twice the rate of losses if they came after increases larger than one percent but less than two percent.  However, the reverse is true –losses double the number of increases- if they followed increase larger than two percent.

DJIA                  2.12 percent

NASDAQ           2.28 percent

S&P500              2.16 percent

April 28, 2009

Prices fell enough in the last thirty minutes of trading to wipe out the small gains that dominated the day.  At the end, the DJIA lost -.11 percent, while the S&P500 decreased  -.28 percent and the NASDAQ dropped  -.33 percent.  There are not many days with losses as minor as these; just 106 since 1950, with 32 in this century.

A further rarity is the pattern of closes in the past three sessions.  While all three indices have a common count two losses in a row, the record of three days ago, on Friday, had the NASDAQ posting its fourth successive gain, while the DJIA and the S&P500 were recording only their second straight increase. 

Indeed, only two other days, since 1950, share this identical pattern, and both occurred in the early 1980’s.  Accordingly, no adequate benchmark is available to make a reliable reading of what tomorrow might bring.

Yet a look at the history of losses as minor as today, does provide a basis of comparison.  The record of the day following, however, shows that the number of further losses is not far different from the number turn arounds to positive change.

Monday’s analysis reported that in the past gains outnumbered declines on the following day.  Clearly, this is not the case, so history could not provide a guide of changes for today.

DJIA                  -.11 percent

NASDAQ          -.33 percent

S&P500             -.28 percent

April 27, 2009

The S&P500 lost  -1.01 percent today, while the NASDAQ fell  -.88 percent while the DJIA  declined  -.64 percent, as prices dropped for the first time in three sessions.  There have been 1,000 such days since 1950, over the 14,500 trading days in the past 60 years.

Yet upon including Friday’s positive closes, and tabulating the frequency of these last two days combined, the number of occurrences drops to just 11.  Of course the reason behind this small number is that Friday’s closes reflected the four straight positive days for the NASDAQ, while the DJIA and the S&P500 experienced only their second rise in a row.

Focusing on just Monday and Friday, and locating these 11 incidents in terms of whether the market was rising or falling, we find most of these, eight in total, coincided with rising prices.  Two occurred while prices were stable and one when the market reached a top.

Using these past patterns to ascertain what the future may hold, note that today’s combination favors strength, whereas Friday’s pattern implied the opposite.  These contrary results, accordingly, expose the thorny problems that accompany forecasts based just on the recurrence of closing patterns.

Note also that Friday’s anticipation of today’s market pattern was favoring price increases for today, by a large margin. This same expectation  continues for tomorrow;  in the past six positive days and only four negative closes followed the patterns established by Friday’s and today’s market results.

DJIA                  -.64 percent

NASDAQ          -.88 percent

S&P500            -1.01 percent

April 24, 2009

The NASDAQ moved higher for the fourth day in a row, as the DJIA and the S&P500 joined the rally, registering their second successive gain.  Furthermore, the NASDAQ gain of  2.53 percent is the largest of the week.  The S&P500 closed up  1.67 percent and the DJIA rose 1.47 percent.

Continuing with the historical comparison of yesterday, this pattern, of four successive positive days by the NASDAQ while the other two indices scored two consecutive gains, has happened only 41 other times.  Most occurred before January 2000, with just nine since then.  Moreover, the rarity is in the combination.  On their own, the individual indices have risen two or four successive days more often.  The NASDAQ experienced 478 sequences of four straight gains; furthermore, the DJIA and the S&P500 records show more than 2000 incident of back-to-back positive closes.

Arranging these 41 happenings in terms of the stage of growth or decline of the market in the past four decades, we find little evidence that they have occasioned strong recoveries.  Instead, 24 coincided with prices topping out, while only 11 came when values were rising.  Moreover, this combination coincided with two market bottoms and four major declines. 

Yesterday’s forecast for today, based on the past, showed further gains far more often than declines.  Indeed today’s advances are consistent with the record.  The scenario for the Monday, the next trading day, based on earlier experience, leads to an expectation of further advances.  Previously these indices rose twice as often as they declined.

DJIA                  1.49 percent

NASDAQ          2.55 percent

S&P500             1.67 percent

April 23, 2009

But that’s only half the story, for while the DJIA and the S&P500 also moved higher, their direction has changed every day of the last four.  Furthermore, NASDAQ’s gain of  .37 percent is negligible and ranks no higher than 3357 of all its closes since 1975.  Yet this change is more than twice as large as yesterday’s  .14 percent.  Meanwhile the gains of the other two indices of nearly one percent, were not enough to move them off yesterday’s losses.

This pattern -the NASDAQ rising on three successive days while the DJIA and the S&P500 are moving up and down- has happened just 19 times since 1971.  Only three occurred since January 2000. 

However, by focusing just on today’s combination, the frequency rises to  94 overall and to 17 in this century.  In considering these last 17 events, it becomes apparent that most transpired while the market was weak.  The figure below plots the NASDAQ since 2000.  The vertical lines indicate these 17 previous closes.  While this diagram yields no firm outlook for the future, nevertheless, this combination came about 12 times when prices were at, or near, a peak.

Today’s outcome is consistent with the market’s past behavior in similar conditions: the number of positive days was far greater than the negative ones.  As for the session following today’s pattern, the available history describes 14 up days and only three declines for the NASDAQ. The S&P500 has 11 positive closes and 6 losses, while the DJIA’s score is 10 gains and 7 declines.

DJIA                  .89 percent

NASDAQ          .37 percent

S&P500             .99 percent

April 22, 2009

Abrupt changes are the rule, not the exception, in recent market action.  Prices gave way toward the end of the session, after holding on to gains above one percent for most of the day.  Whereas the DJIA and the S&P500 closed lower, the NASDAQ did not fall into the red, but closed up by just  .14 percent.  The market pattern now stands at  -1/+1/-1 for the DJIA and the S&P500 and at  +2/-1 for the NASDAQ.  This combination has occurred 45 times since 1950, with 7 of these happening in this century.  All of these closes share the quality that, while the overall path of prices may have been positive, they come at a phase when the market is not moving up.

As for the next day, in the past the DJIA and the S&P500 increased almost twice as often they fell, whereas the NASDAQ ratio is closer to 1.5 times.  Evaluating today’s results in terms of what could be expected based on identical happenings in the past, the conclusion is that today’s small changes –except for the DJIA- is consistent with the even number of declines and increases

DJIA                  -1.04 percent

NASDAQ             .14 percent

S&P500              -.77 percent

April 21, 2009

(Posted 4/22 at 2:30 PM)

Another up reversed Monday’s deep down, as prices shot up from the opening.  It was almost a mirror  image  of the day before, except that today’s gains were smaller than yesterday’s losses.  Combining both sessions, we find just 11 other such combinations.  All these occurred since 1997, with eight happening since 2008. 

Yet today’s gains of  2.22 percent for the NASDAQ,  2.14 percent for the S&P500 and  1.63 percent for the DJIA, are far smaller than each of those earlier 11 resurgences.  Moreover, all of these happened when prices were heading down, or were at the trough of that phase. This is shown in the graph below.

As   for the next day, in the past the DJIA and the NASDAQ fell 6 times and moved higher 5 times, while the S&P500 had 7 decreases.

Today’s advances are consistent with the historical record, described yesterday, which shows advances outnumbering declines by a substantial margin.

DJIA                  1.63 percent

NASDAQ          2.22 percent

S&P500             2.14 percent 

April 20, 2009

The market was in negative territory from the start, and closed with the S&P500 down  -4.32 percent.  The NASDAQ lost -3.88 percent while the DJIA fell  -3.56 percent.  But the good news is that today was only the fourth negative day of the 13 trading days this month for the NASDAQ and the S&P500, and the fifth for the DJIA. 

Moreover, today saw the first down close in four days, and came after three straight gains at the end of the week.  As our Friday discussion pointed out, in the past a fourth successive gain occurred only 20 of 49 days for the DJIA; it was almost even for the S&P500 whereas the NASDAQ’s gains outnumbered losses by a ratio of 29:20.

In addition, putting today’s losses in perspective, prices are still substantially above the market’s bottom on March 3 and March 8.  The NASDAQ has now increased more than 26 percent in the 27 trading days since early March, while the DJIA and the S&P500 are up 20 percent.

Looking at the next trading day, in the past after a pattern of  -1/+3, that is the day after a decline that followed three gains in a row, the NASDAQ only had six losses compared to eleven gains.  The S&P500 fared somewhat better, with only three further losses against 14 increases.  The DJIA’s record is in the middle, having four losses but thirteen gains since January 2000.

DJIA                -3.56 percent

NASDAQ        -3.88 percent

S&P500           -4.32 percent 

April 17, 2009

Minimal gains closed the week, with the DJIA up just  .07 percent, while the NASDAQ moved .16 percent and the S&P500, the leader of the day, increasing  .50 percent.  Whereas the past record, described in yesterday’s blog, projected an even chance for gains as for losses, this outcome of near zero movement by all three indices, is a near approximation.

Small changes like today are infrequent –the DJIA has the most with 811 out of the more than 14,000 trading days since 1950. Yet this close, with the three indices held to such small positive numbers, is a first.

This, the third positive close in a row for the indices, is also not a common occurrence.  There have been just 208 since 1950, with  only 49 in this century.

Yet, with four of these coinciding with the bottom of the 2000-2003 decline, the hope that this bear market is nearing the end has some basis in fact.

As for Monday, history reveals only 76 days with all the indices moving higher for the fourth time in a row – moreover, there have been only 16 such closes in this century.

DJIA              .07 percent

NASDAQ       .16 percent

S&P500          .50 percent