April 8, 2009
While prices closed above yesterdays they did not recover all the losses of the previous two days. Yet at the bell, the indices were lower than they had been most of the session. At the end, the NASDAQ gained 1.86 percent, recouping more than half of yesterdays decline. The SP500, however, up by 1.18 percent, recovered just 50 percent of the April 7 loss. The DJIA was far down in that list; its gain of .61 percent is less than a quarter of the previous days gain.
This outcome of advances is consistent with previous experience, when the gainers outpaced the losers almost 2:1 on the day following two losing sessions that came after four straight positive days. (Short hand for this pattern is +1/-2/+4.)
Looking at the time path of prices during the last bear market, from 2000 to 2003, reveals that it took that earlier downturn 755 trading days before hitting its bottom. The current decline is just 377 days past its October 2007 peak. The diagram below illustrates this comparison.
Of course, it is possible that this downturn will be shorter. Support for this conjecture comes from the three bottoms already reached by this market, far ahead of the triple floors of 2003. Yet if this is not the case, and prices fall some more, it could provide a level of confidence and thus support the sliding market.
DJIA .61 percent
NASDAQ 1.86 percent
S&P500 1.18 percent