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 Fridays 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 Fridays 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 todays combination favors strength, whereas Fridays 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 Fridays anticipation of todays 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 Fridays and todays market results.
DJIA -.64 percent
NASDAQ -.88 percent
S&P500 -1.01 percent