USMarketView

Today’s strong results stopped the run of the many recent negative sesions as the indices posted their largest increase in 13 days. Prices fell in 8 of the last 13 trading days. The NASDAQ led, rising 3.73 percent; the S&P500 moved  3.29 percent higher and, while trailing, the DJIA  closed up  2.85 percent.  

Our comparison with past patterns begins with the number of closes with greater percentage gains  than achieved today. There are just 45, with 36 occurring since January 2000.

Yet note that the current session is the first positive day for all three indices. This additional screening  yields cuts the count to 20 overall, and shows that 17 of these came since 2000.

The diagram shows the S&P500 closing prices since 2000, and a triangle identiffies those 17 incidents.

Importantly all coincide with falling prices. Note that this is the first occasion, of the many previously presented, which associates today’s pattern with decline rather than future advance.

On the other hand, though, a case can be made for increases; this view concentrates on the timing of these days relative to the bottom or end of previous declines. It is quite appearant that even if these
situations occurr when prices are falling, they are, however, clustered immedately before the lower turning point and another era of rising values.

DJIA              2.85    percent
NASDAQ      3.73    percent
S&P500         3.29    percent
 

May 26, 2010    

Another Down Day

Sorry – hang ups with the computer data base allow only a brief report.

The day combined the third straight decline of the NASDAQ, down – .68 percent, and the DJIA, off  -.57 percent,  with  the S&P500, after a positive close yesterday, down  -.57 percent. This is a repeat of the unusual combination of the three indices not sharing  identical, daily profiles. In this case, the record reveals only 8 other such closes, with two occurring since January 2000.

The next day results of this pattern show 5 gains and 3 losses.

Problems with the data base prevented further analysis, specifically aimed at the question, are frequent  small changes more common at turning points of price trends than when prices move confidently in either a positive or negative trend.

We direct further attention to the daily price movements of the current cycle compared to the 2003/2007 cycle. Both profiles reveal that recovery is neither smooth nor continuous, but is subject to sytematic and significant reversals.

More on this tomorrow  – if the computer problems don’t evade correction.
 
DJIA              -.69   percent
NASDAQ      -.68   percent
S&P500         -.57  percent

The market escaped deep losses which had prevailed almost to the closing bell, and while the DJIA and the NASDAQ fell by fractions, the S&P500 gained  .04 percent. Yet, while positive, the S&P500 advance was a lesser absolute number than the DJIA’s  -.23 percent and the NASDAQ loss of  -.12 percent.Today’s pattern of +1/-1/+1  for the S&P500, therefore, diverges from the -2/+1 count of the two other indices.  There are just 5 incidents like this in the record that reaches back to 1950; and merely two occurred since 2000.

With a similar departure from the usual agreement of direction crossing the tape about a month ago, what, if anything, do such disagreements imply for the market’s future? Obviously the strong advance from the March 2009 low point ended some time ago.

Yet it is far from clear if the uncertainty created by our Congress’ proposed changes in the regulation of the financial sector in addition to the European crises, have a significant role in weakening, and losses, of prices.  DJIA           -.23 percent

NASDAQ   -.12 percent

S&P500      .04 percent

Even though the early action resulted in gains, by the close values had fallen, almost in the same magnitude as Friday’s advance.  The sharpest hit S&P500 lost  -1.29 percent; the DJIA did not do much better, falling-off  -1.24 percent. The NASDAQ lost  -.69 percent.

Today’s pattern – a losing day, after one increase, that followed three down days – has taken place  16 times before today; the majority, 10 of these, came after December 1999. Triangles mark these instances on the diagram of the S&P500. Clearly, without guidelines to separate bull from bear markets, this sequence of downs and ups clusters when the trend of prices is up. 

Only two occur during a decline; perhaps a third one, just prior to the 2007 peak might be included. All others came when prices were rallying.

This information, similar to most recent pattern analysis, projects further gains, contradicting the actual, recent slowdown and erosion of previous advances. Similarly, it challenges the pessimism and fears of significant price corrections that continue to spread, it seems, in an accelerating tempo.

DJIA               -1.24  percent                                  NASDAQ        -.69percent

S&P500           -1.29 percent

The market shifted gears, scoring an increase – only the sixth positive session in the last 15 trading days. The S&P500 was up  With only one positive close in the past six trading days, percent, followed by the DJIA’s gain of 1.25 percent and the 1.14 percent of the NASDAQ.

The last three weeks of 15 trading days drove down the indices severely. The reversal battered the NASDAQ, losing  -12.26 percent since the beginning of May.  The S&P500 fell  -11.2 percent while the DJIA reversal was  -9.84 percent. Putting the disruption, so far, in perspective, the S&P500 loss is its 83^rd worst –over 15 days- since 1950. The DJIA

position is number 118 whereas the NASDAQ rank is 182. (The NASDAQ’s further back position results from its steeps losses at the end of the Internet boom.)

Searching for insights into the future, turn to the S&P500 record: it reveals 89 instances when that index lost more than an aggregate of  -11 percent in the previous 15 trading days.

The focus of this comparison is on the 49 occasions that happened since January 2000. On the following day –that is a situation comparable to this Monday coming- the market continued its spurt just 12 times. The other 37 closes turned out to be negative. 

 DJIA               1.25  percent NASDAQ       1.14  percent

S&P500           1.50 percent

With only one positive close in the past six trading days, the consensus of outlooks has shifted to pessimistic. Of course the news coming from Europe – first the impending defaults and then proposals for an international tax to assert responsibility and to show support for countries which have spent themselves into near bankruptcy – helped to spread gloom and increase uncertainty.

Today’s S&P500 loss of  -3.90 percent is its 39^th worst single session decline since 1950. Similarly, The DJIA fell – 3.60 percent, becoming the 49^th deepest one day decline. The NASDAQ, however, which fell  -4.11 percent, came in as the 79^th steepest – but that ranking reflects the shambles of its go-go years.

 Leaving the fundamentals, and considering only the history of numerical changes, brings some balance into view. The diagram shows the level of the S&P500 on the 49 days that all three indices recorded three losses in a row.

While the frequency of this combination seems greater in the two rising periods, their incidence, as a proportion of all trading days, is somewhat lower than their occurrence in falling markets. Yet these numbers provide little breathing space between bull and bear markets.

The 2.03 percent in the earlier upswing, and even the 2.26 percent of the later one, seem not very different, statistically, from the 1.82 percent of the 2007/2009 decline, or from the 1.99 percent rate since March 2009.

Nevertheless, for purpose of scoping the future, these results indicate that losses this large, and this frequent, are not always, and need not be, associated with falling stock prices.

DJIA              -3.60  percent

NASDAQ      -4.11  percent

S&P500          -3.90 percent

Only yesterday’s slight build up averted prices from falling for four straight days.  This sequence yields a -1/+1/-2  pattern, a combination seen 48 times since 1950, with 22 occurring after January 1, 2000.  The NASDAQ slumped -1.57 percent; the S&P500 dip was -1.42 percent while the DJIA fell -1.08 percent.

The diagram of the S&P500 marks the timing of these chains. They appear to be more frequent when the price trend is up. Yet even then, they occur more often when the trend of prices either pauses or reverses. The frequency of these clusters appears to be greater at tops then at bottoms of the trend line. Yet that their presence need not indicate market reversals is evident from their interaction with prices during the 2003/2007 expansion. Then, after hesitating, market values moved higher.Consequently this third incident in the past few months is consistent with expectations of a pause, or a decline and even an increase in prices.As for the following day, in the past a just about even distribution exists between an increase (12 days) and a further decline (10 days). Yet the data indicate that negative changes tend to exceed the size of increases. For example, the DJIA’s average decline of  -1.42 percent is a third larger than its average increase of  1.08 percent. The NASDAQ record shows the average decline of  -2.58 percent more than twice the size of the average gain of  1.21 percent.DJIA              -1.08   percentNASDAQ      -1.57  percentS&P500          -1.42 percent

Prices, off about  -1.5 percent during the day recovered at the end to close slightly higher. The NASDAQ gained  .31 percent, the S&P500  .11 percent and the DJIA squeaked into the positive by a mere  .05 percent.

The pattern of +1/-2  summarizes the daily changes since last Thursday: today’s increase followed two declines in a row. Previously, 61 days reported this combination since 2000, and 89 more occurred in the previous fifty years.  Unfortunately, it is not possible to include and to evaluate the history of Wednesday’s positive close.  Only two days, back in 1978 and 1980, experienced this pattern of +1/-2/+3.

Considering the record of the following day reveals that it to be more or less evenly distributed between positive and negative closes. However, many of the next day’s gains were found during the two upswings.

Currently the NASDAQ has recovered near 83.5 percent of its 2007 high. That ratio, however, had reached 90 percent at the end of April. The other two indices have not regained as much. The DJIA now stands at 75 percent and the S&P500 at 74 percent; these ratios have dropped from their 79 percent highs in April, some four weeks ago.    DJIA                .05 percent                                NASDAQ        .31 percen  S&P500           .11 percent 

     A confused week that started with a sizeable gain, closed with two losing days. Yet today’s prices remained –if barely- higher than a week ago.  While Monday saw all three indices moving higher, they fell on Thursday and Friday. With the NASDAQ advancing through Wednesday, its week ended with a pattern of -2/+3; the DJIA and the S&P500 pattern, however, is  -2/+1.Moreover, whereas the three indices posted 379 two-losing days in a row, they had   no more than 6 results showing two-losing days in a row, following a gain. Just two of these took place in the past ten years.

The financial news, both abroad and at home, and the resulting uncertainties took much of the blame for these gyrations. Yet even though a consensus held that expectations for the short term were hurt, judgments about the long term impacts were divided and ranged from disaster to good times ahead.

  Comparing the decline of 2007 and the recovery started in March 2009, with the path of the earlier, 2000/2007 cycle provides insights for the future.  First, the diagram shows this cycle fell more steeply and recovered faster than the earlier one. Second, the timing of the current sluggishness and decrease in values is similar to the earlier cycle. Third, these occurred for both cycles at about 630 to 655 days from the earlier peak.Fourth, these coincidences could be random and not a systematic pattern of recovery. Yet the parallel construction of these paths allows the interpretation that, while the European financial   conditions and  the  domestic housing and unemployment situation certainly are troubling, security prices would have declined nonetheless at this stage of the stock market cycle.  DJIA                -1.05 percentNASDAQ        -1.26 percentS&P500           -1.22 percent