A confused week that started with a sizeable gain, closed with two losing days. Yet todays 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