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Prices dropped further than Thursday’s gain, with the NASDAQ falling 2.02 percent, the S&P500 sinking  1.67 percent and the DJIA off  -1.42 percent. The NASDAQ dip ranks as the 477^th worst of the more than 4,300 declines in its history; similarly the loss of the S&P500 is its 512^th severest, going back to 1950.  The DJIA’s smaller loss nevertheless placed it at number 735 from the bottom.

Even though the focus of  USMarketWatch is to seek underlying patterns from history, the news that government sees activities of surely the highest respected financial firm as unlawful,  cannot be dismissed, not taken into account. This surely has more impact on the fundamental core of expectations than an unforeseen uptick in the price level or the unemployment rate.

Nevertheless, evaluating today’s closing configuration reveals that a down day after two successive gains has occurred just 76 other times since January 2000. Further, that they were more common in the 2007/2009 decline than in the previous and the following recoveries.

Yesterday’s projection, tilted significantly to a further increase, obviously was a false call. Yet using the same technique, based on the record, results in the conjecture of a positive close on Monday. In the past, though more positives characterize the follow-up sessions, the actual ratio of 57 percent gains to 43 percent losses fails to provide a robust trust in the projection.

DJIA              - 1.42 percent                                NASDAQ      - 2.02 percent                   S&P500          - 1.67 percent

The NASDAQ led the market, gaining  1.63 percent – the largest advance since the beginning of 2010. Taking second place today, the S&P500 increased 1.29 percent, its most extensive change in 18 trading days. While the DJIA shared this last high day, it closed up  1.11 percent.  

A further encouraging feature of the day is that the three indices have recovered, and almost reached their previous highs recorded last Thursday and Friday.Today’s pattern  - of +2/-2 for the NASDAQ and the S&P500, and +2/-1 for the DJIA- is only the tenth in recent times, and the fifth since January 2000.

Furthermore, today’s gains for the NASDAQ and the S&P500 exceed their average past gains for this pattern.

Projecting what might happen tomorrow, based on this record, yields a positive outlook, since they moved ahead on three of the last four occurrences.

Moreover, a watch on the frequency pattern of the S&P500 could prove fruitful. Its closes over the past four days feature two days of gains after two days of losses.  There have been 85 of these up-two-down-two-days since 1990. Extending this series requires two successive losses for the S&P500 over the next two market days.

Yet the probability of  seeing this continuation tomorrow and Monday, is far from overwhelming, since only 21 of these 85 went on to post an up-two-down-two-up-two-down-two series.

DJIA               1.11 percent                       NASDAQ       1.63 percent                    S&P500          1.29 percent

Unlike their European colleagues, our buyers and sellers neglected the impending defaults of Greece, allowing our equity prices to close on a stabilizing note. While the NASDAQ hovered between the negative and positive till the last few minutes, it closed up by plus .01 percent. The S&P500 gained .65 percent and the DJIA moved  .48 percent higher.

Naturally these positive changes relieve yesterday’s concerns of an impending major dip. Furthermore, this recovery articulates a further contention of higher prices in the long run because declines deeper than minus two percent for two days in a row are a feature of bear markets. The diagram shows clearly that all but two of these sequences since 1990 occur as the market is reaching its lower limit.

The pattern of closes now stands at one gain after two decreases for the NASDAQ and the S&P500 and at +1 /-1 for the DJIA.

Today is the 15^th repeat of this sequence, with 6 taking place since January 2000.  In the past, the following day saw the DJIA rise 5 times while the other two indices have a 4:1 gain-to-loss ratio.

DJIA               .48 percent            NASDAQ       .01 percent                                 S&P500          .65 percent

Prices plunged and the DJIA was denied another, seventh, positive day in a row. Instead it lost  -1.90 percent; yet the S&P500 and the NASDAQ fared even worse. The S&P500 suffered a  -2.34 percent drop while the NASDAQ fell -2.04 percent.  All told it was the worst trading day since February 4^th, 56 trading days ago.

Comparing today’s loss separately to the ranked declines of each index, the S&P500, again, fared the worst – the  -2.34 percent decline is the 202^nd deepest in its history, going back to 1950. The DJIA had 355 worse closes while the NASDAQ, ranked at number 470 from the bottom, had the best relative performance of the three.Yet this descent -unwelcome, of course- need not signify a downward spiral in the making. 

Indeed, today’s pattern of two straight declines for the NASDAQ and the S&P500, combined with the first negative DJIA close in seven days, has taken place 12 previous times since January 2000. Moreover, the diagram shows that a trend of rising prices followed 10 times. And, of the 50 occasions since 1970, 35 preceded bull market conditions.Consequently, today’s drastic downgrades need not signal a future end to rising prices. Indeed, it fails to indicate that a spontaneous revaluation of this market’s potential is imminent.

DJIA               - 1.90 percent                  NASDAQ       - 2.04 percent                  S&P500          - 2.34 percent 

Closing up just  .01 percent, the DJIA squeezed out its sixth consecutive positive day. The NASDAQ, though, lost  -.29 percent and the S&P500 fell -.43 percent. This yields a pattern of  +6/0 for the DJIA and 0/-1 for the other two indices.  While five of these configurations are on the record, a case could be made that the DJIA’s position is not positive in a significant sense; thus today’s pattern is not very different from the three indices together posting declines.  And the market has experienced 406 of these since January 2000.But taking today’s slim  .01 percent DJIA at face value, it makes today’s result the 160^th repeat of six straight advances, 16 of which happened since January 2000. The sequence was extended for the 7th day six times, but declined on 10 occasions. Yet the S&P500 moved higher on 14 days, declining on 2, while the NASDAQ record is up 12 days and down on four.Nevertheless, given the slim margin of the DJIA advance, the better judgment is to pass on today’s close, and not consider today’s record a meaningful platform for projecting future market changes.

DJIA                .01 percent                         NASDAQ      - .28 percent                     S&P500         - .43 percent

With the DJIA closing pattern at five successive gains, the NASDAQ registering the fourth uptick in a row and the S&P500 moving higher for the second straight day, the market maintains recording finishes that have not crossed the tape before. Therefore, the analytical program of MarketWatch, based on comparisons of past daily changes, cannot function. It is deprived of data for comparisons and projections. 

Accordingly the focus of today’s blog is different: it compares the frequency of daily index changes when each of the three indices has a different pattern of closes. In essence we address the question of how often, since January 2000, has the DJIA scored five successive advances, while the NASDAQ and the S&P500 have done so on only four or two days. 

The accompanying figures show these data; further, they indicate their incidence in each of the up and down phases of the past two price cycles. As is to be expected, the S&P500 has more happenings than the NASDAQ and that index has more than the DJIA.  That’s caused by the simple fact that two gains in a row occur more often than three gains in a row. 

But the diagrams reveal the startling fact that positive runs crop up more often during upswings than when prices are in a decline.  Whereas this revelation may, or could, be useful to day traders, it provides insights into the long run trend of prices. That is, rather than concluding that such data predict daily advances, the more critical insight is the intimation  of the market’s overall character; that is, whether the future trend will be one of rising or declining capital values.  

DJIA                .63 percent       NASDAQ        .44 percent     S&P500           .71 percent

The S&P500 returned to positive territory, gaining  .23 percent, while the DJIA, plus  .08 percent, closed higher for the fourth successive session. Thus, with the NASDAQ also rising by  .58 percent, the market extended yesterday’s unusual configuration. Whereas on Wednesday three other closes shared this mold, there is merely one identical to today.That date is July 12, 1993, and on the 13^th, the next day, the S&P500 turned down again, and so did the DJIA, whereas the NASDAQ continued on to higher ground.Unfortunately, attempts to fit these recent repetitions into the mold of the 1993 failed. Accordingly, for the second or third consecutive blog, MarketWatch cannot provide a projection of Friday’s market.

DJIA                .08 percentNASDAQ        .58 percent                     S&P500           .23 percent

Today’s close is just the fourth instance when [1] the S&P500 fell after a positive run, [2] the NASDAQ closed higher for the second straight day, and [3] the DJIA closed higher for the third successive day. Further, the most recent of these occurred in 1993, with the other two dating back to 1985 and 1993.

The other unusual feature of the day is mildness of the changes scored by each of the three indices. The S&P500’s decline, of -.10 percent, ranks as the 126^th smallest negative movement in the more than 7,000 declines since 1950. On the other side, the DJIA gain of  .07 percent is the 565^th minutest increase ever and  places 95^th in the near 1,100 gains in this century.The NASDAQ’s change of  .17 percent, while small as well, nevertheless is twice the size of the DJIA’s. Accordingly it is higher up in the grading, coming in at number 968 of the 2,900 some positive NASDAQ closes since 1975, and 150^th of 1,300 gains since January 2000.

These rare happenings fail to provide a sufficient number of observations to even consider the changes that might arise tomorrow.  Reviewing yesterday’s projection – that the record was too evenly distributed between advance and declines –  it is judged useful by not providing any projection at all.

DJIA                .07 percentNASDAQ        .17 percent                    

S&P500          -.10 percent

Closing at 2500.31, the NASDAQ broached that level for the third time in the 4 days. Its recovery continues to outpace the DJIA, at 79 percent of the 2007 high. Both leave the S&P500 far behind, only at 77 percent of that high.

The NASDAQ time path of closing prices, in the diagram, reveals its rapid recovery, compared to the earlier cycle, as well as the devastating drop from the internet booming go-go high.At the end of today’s session the NASDAQ as well as the S&P500 moved  .81 percent ahead. The DJIA gained just  .23 percent, but note that it outperformed the other two indices in recent days.

The current pattern of past closes is +2/-1 for the DJIA and the S&P500; it is +1/2 for the NASDAQ. The market has repeated this array a total of 159 times. Seventeen of these occurred since 2000, with the indices rising again after five of those recent closes. In total, since 2000, the NASDAQ and the S&P500 increased 9 times and fell on the other eight. The DJIA, though, has a significant tilt toward the negative side, with twelve declines and only five advances.Differences of these magnitudes leave the prospects for the following day uncertain; and like yesterday, such counts provide no meaningful insight into the future.

DJIA                .23 percent

NASDAQ        .81 percent                    

S&P500           .81 percent

 Improving at the end after being in the red most of the day, the DJIA closed up  .67 percent and the S&P500 gained .45 percent. Unhappily though, the NASDAQ just failed to cross into positive territory, declining instead by .05 percent. 

While modest, nevertheless these results feel much better than the losses recorded on the last trading day of last week. They erased all the progress made in the previous six trading days.

Returning to the situation at the end of Thursday’s trading, when prices had moved higher in each of the last six days, and considering previous runs of six positives in a row, we note a favorable outlook for the future direction of the market. 

The diagram marks the three previous occasions when the DJIA, the NASDAQ and the S&P500 indices together moved higher for six straight days, with an O. The indices fell together for six successive sessions twice- these have the symbol /\.

All but one of these happened when the trend of prices was up; but all three of the positive runs, as well as last one of Thursday, accompany movements to higher values. This is the basis of a judgment for a positive long term view of the future.

Turning to today’s results, the outlook for Tuesday, based on the past, fails to provide definitive projection.  The distribution of gains and losses is almost even, with the negatives outnumbering gains by a mere 15 to 13 margin.

DJIA                 .67 percent

NASDAQ        -.05 percent                    

S&P500            .45 percent