Archive for May, 2010

May 13, 2010 — Down After Up, Down After Up for DJIA and S&P500

Friday, May 14th, 2010

Prices for the DJIA and the S&P500 today changed direction for the fourth time over the past four trading days. Yet, the NASDAQ, which also declined today, scored three advances in a row during this period. Moreover, each of these indices dropped more than one percent at the end of the day.

That this roller coaster experience leads to questioning the market’s future, especially in light of the disturbing developments in Europe, should not be surprising. Whereas gains –or losses- day in and day out also stimulate probing, their direction simply reinforces views of the outlook.

Accordingly, we look at the past to frame our views.There have been 149 repeats of this four day down and up pattern, with 59 occurring over the past decade. The diagram pinpoints these with triangles and the vertical lines separate falling and rising trends.  

 down-up-down-up.GIF

 Their distribution appears unrelated to the market’s underlying direction.  Casual inspection does indicate their tendency to bunch at turning points. Yet this is so whether prices change for the worse or the better.  Moreover, the declines in the S&P500 for this pattern are in the same range as today, and their averages are unrelated to market tendency.

Even though this first approximation fails to provide a forecast of prices, it reassures because flutters occur but these are not always associated with market declines. 

 DJIA           -1.05 percent     NASDAQ     -1.26 percent S&P500      -1.22 percent 

May 12, 2010 —Prices Return to May 4 Level

Wednesday, May 12th, 2010

A resilient market returned prices to near their May 4 level, reached just 6 trading days ago.  The NASDAQ leads the gains, rising 2.09 percent, while the DJIA and the S&P500 added  1.38 and 1.37 percent. It was the NASDAQ’s third consecutive up day although the two other indices have moved higher and lower on alternate days.

Today’s pattern has repeated 98 times (for the DJIA and the S&P500) since 1950; it is the 14th happening since January 2000.

Turning to the outlook for tomorrow, note that advances exceeded declines by a large margin in the past. The NASDAQ moved higher on 12 of the 13 replications of today’s pattern. The record for the DJIA and the S&P500 is nearly as good – with 11 advances and just 2 declines. 

DJIA               1.68 percent           NASDAQ       2.09 percent S&P500           1.37 percent

May 11, 2010 — Not Much Change

Tuesday, May 11th, 2010

n-up-two-s-and-d-down-1.GIF

Prices moved lower and higher during the session then closed with the NASDAQ up  .03 percent and both the DJIA and the S&P500 down  -.34 percent. Hence, after Monday’s substantial gain, the NASDAQ pattern is ‘plus two’ gains in a row whereas the configuration for the DJIA and the S&P500 is ‘minus one/plus one,’ or today’s decline after Monday’s gain.

Such a result allows bears to conjecture yesterday’s sharp rise as a simple flare-up, not contradicting their belief that the negative trend, established earlier, will hold in the future. And the bulls can believe that the small change, after yesterday’s large correction, confirms the forecast of higher values in the future, despite the recent falloffs.

Turning to the record, previous to today, we find 201 repetitions of this pattern, with 34 occurring since January 2000. The diagram of the S&P500 identifies these with a triangle, and the turning points of the last two cycles with a vertical line. 

The numbers along the bottom represent the percentage of days with this configuration in each of the four cycle phases.Clearly, these show that rate of these events is smaller in the decline than in the following upswing. So the first recovery frequency of 1.38 percent exceeds the earlier downturn frequency of .76 percent of all trading days.

Further, the   ratio of these two proportions is 1.67; significantly, it is identical to the following pair of down-then-up frequencies. There seems no explanation for this equality, and its appearance is unexpected.

Can we infer, then, that the identity of the current numbers with that of the closed, historical cycle indicates that, while the ultimate direction of the current market remains uncertain, that there exists strong evidence that the bull market is not over?

Yet, short of further evidence, an equally persuasive case can be made for notion that the increasing occurrence ratio in each and every period simply shows a rising trend. That on its own, the significance is historical rather than predictive.

DJIA              - .34 percent          NASDAQ        .03 percent                   S&P500          -.34 percent

May 10, 2010 — Huge Gain, yet Market Still Below a Week Ago

Monday, May 10th, 2010

Today’s S&P500 gain, of  4.40 percent ranks as its 26th largest since 1950, and is number 16 since January 2000. Yet given the substantial losses last week, the index failed to recover its recent high, reached last Monday. An almost identical outcome describes the other two indices. The NASDAQ’s  4.81 percent comes in at number 40 from the top, while the DJIA stands in the 17th position.

As for the pattern, there are just 9  incidents showing a positive close after four successive losses. Furthermore, only one of those beat today’s gain and only one other came anywhere close to what the market achieved today.

Unfortunately, these two incidents fail to provide insights into the long term path of prices, since the larger increases came just before the 2003 bottom, while the other occurred just after the 2007 top!

The short term, projection for tomorrow’s close based on this record, fails to provide an optimistic outlook.  In the past, all three indices managed only three days of further improvement, while losses were posted on the other six.

DJIA              – 1.33 percent
NASDAQ      – 2.33 percent 
S&P500          -1.53 percent

May 7, 2007 — Losses Persist for Fourth Day

Saturday, May 8th, 2010

The rise in the unemployment rate offset the promises for recovery by other data while the news of further unrest in Europe and continued puzzlement about Thursday’s trading exacerbated, rather than resolved, the unease of market watchers. Thus, ex post at least, the week closed with a further decline of prices.

The worst hit was the NASDAQ, losing -2.33 percent, whereas the S&P500 dropped – 1.53 percent and the DJIA fell – 1.33 percent.Four consecutive losses are not routine, let alone all three indices affected simultaneously. Nevertheless, today’s is the 17th since January 2000 and the 47th going back to 1950.  The NASDAQ fell -9.33 percent over the four days, the S&P500  -7.6 percent and the DJIA -6.92 percent. Ranked in order of severity, these results score as the fourth worst of the last 17 four-in-a-row experiences.Yet the mere occurrence of these negative runs does not translate into a market top and a forthcoming trend of falling prices.

indices-fall-four-days-in-a-row.GIF 

The diagram shows the S&P500 closing prices since 2000, and indicates when, and the percentage this index fell over four days, when all three indices absorbed four declines in a row.Whereas some of the episodes occur immediately before the beginning of substantial declines, others, as in 2003, cross the tape at the market’s bottom. Since others appear when no substantial market changes follow, the down four-in-a-row fails to provide guidance for foretelling market direction.

Nevertheless this negative conclusion provides valuable information: history fails to show that price recessions automatically follow such four in a row declines by the three indices. Indeed, looking at the record, on the day following, the NASDAQ moved up 10 times, falling six times. The DJIA and the S&P500, similarly, scored 9 gains and 7 declines.

DJIA              - 1.33 percent              NASDAQ      - 2.33 percent                   S&P500          -1.53 percent 

May 6, 2010 —Investor’s Choice: Blame Sharp Loss on Europe or on Trading Glitch

Thursday, May 6th, 2010

While the day ended with deep index and stock losses, they recovered from a catastrophic near minus 10 percent in the late afternoon. After the close, the NASDAQ announced it would not honor trades if they resulted in gains of plus 60 percent realized after 2:40 in the afternoon.

Yet that is only one version attempting to explain the savage yo-yo of prices. Others put the blame on the ongoing financial crisis of Greece and the resulting decline of the Euro. Let’s look at history, using it to present some hard facts that focus on established conditions surrounding similar losses.

One, today’s percentage losses for the DJIA and the S&P500 rank as their 65th worse decline since 1950. The NASDAQ position, however, stands as its 122nd – but that relative moderation results from the deep losses suffered when the electronic boom burst.

Two, it’s necessary to go back almost a year to find drops as serious.

Three, the NASDAQ record confirms that only 92 trading days since 2000, had deeper drops. The S&P500 shows 43 worse days while the DJIA comes in with 39.

Four, all these losses occurred during an underlying trend of steeply falling prices during the 2007/2009 downturn as well as the 2000/2003 slump.

Five, these facts challenge explanations based on bookkeeping or other purely mechanical causes – although it is prudent to conjecture that indeed these circumstances contributed to, and worsened, a major decline resulting from changed perceptions of the fundamentals.

DJIA              - 3.20 percent                               NASDAQ      - 3.44 percent                   S&P500          -3.24 percent

May 5, 2010 —- Are Rising Values at an End or a Pause?

Wednesday, May 5th, 2010

23-events-pattern-2-1-1.GIF

Today’s decline, the second in a row, combined with three drops deeper than  -2 percent, over the last six trading days, compels exploring  where is the market; and will recent developments in this country and abroad road block the continuation of the price recovery begun some 15 months ago.Have the European deficits and the Euro decline downgraded the basic structure of corporate earnings and values? Will planned government inquiries and the law changing activity of Congress debase the trading environment and the readiness to participate in, and accept these new uncertainties tainting the capital markets? Much time, unfortunately will have to pass prior to the answer. Yet trading and portfolio decisions, affecting us in the future, have to be made now.  Technical analysis, therefore, provides an opportunely to fill this information gap. Naturally, projecting future price activity comes with its own caveats but still it generates an up-to-date perspective.Accordingly, consider today’s trading. The closing pattern of the three indices is  -2/+1/-1, or a second decline, following Friday’s increase, after Thursday’s steep loss. This combination has occurred 45 times before, with 23 of these since 2000. The diagram indicates their positions and the percentage change of each point.The vertical lines divide the plot into decline, advance, decline and the current advance. However, their distribution fails to provide differing patterns when prices rise and when they fall.Yet an inference can be gained from considering the median price change during each period.  The median of these numbers, posted on the lower edge of the diagram, reveal the daily losses significantly more severe in the down periods than during the 2003/2007 price advance. While the single previous occurrence since 2009 was -1.89 percent, today’s loss of  -.55 percent implies a growth, rather than a waning environment.  

DJIA              - .55 percentNASDAQ      - .91 percent                     S&P500          - .66 percent

May 4, 2010 — A Down Day with Severe Losses

Tuesday, May 4th, 2010

Falling from the very start, the NASDAQ dropped  -2.98 percent. The S&P500 fell -2.38 percent while the DJIA lost  -2.02 percent. Ranking the indices by their extent of the loss, both the NASDAQ and the S&P500 placed as the 185th worst day, and the DJIA was number 285 from the bottom.With the focus on the future, the question arises as to what today’s losses –the second of this size in the past few days- indicate for prices.  Does this series indicate a down turn or just a pause in the positive trend that started in March 2009?

We consider also the pattern of recent closes. It summarizes as -1/+1/-1, or today’s down day succeeding yesterday’s gain which came after Friday’s decline. While the record shows 74 such closes since 2000, just 8 of these had losses comparable to today’s.

final-2.GIF

The diagram illustrates this information and the S&P500 closing prices since 2000. First, no obvious relationship exists between these incidents and the trend of prices over the past two complete cycles. Yet it is troubling to recognize the frequency of these episodes often clustering near the upper turning points, before or coinciding, with a decline in prices.Nevertheless, because a few of the collections coincide with short period of falling prices before the market continues its appreciation, it is not practical to infer the future, longer term impact of these recent closes.However, this situation precludes also the continuation of recent projections, based on past patterns, that security prices have a solid base for further appreciation,  

DJIA              - 2.02 percent   NASDAQ      - 2.98 percent                   S&P500          - 2.38 percent

May 3, 2010 — Substantial Gain Continues Rally

Tuesday, May 4th, 2010

If, on Friday, the consensus considered the announcement of Goldman Sachs investigation foretelling an end to the upswing that started in March 2009, today’s results spell an objective ‘No’ to that conjecture.  The NASDAQ gained 1.53 percent, the S&P500 1.31 percent, and the DJIA 1.30 percent.

Moreover, the pattern at the end of trading today stands at  +1/-1/+2 for the three indices, a combination occurring 57 times in the past, and on 37 days since January 2000. The conclusion, upon analyzing these later closes, supports a projection of rising markets ahead.Twenty-five of these happened during the market appreciations of 2003/2007, while the other 12 came during the declines of 2000/2003 and 2007/2009. 

This ratio of 2:1 supplies strong support for the projection of a rising price mode for the current market.Looking at tomorrow, in the past another round of increases dominated the following day. While the overall count is 21 gains and 16 declines, note that these are not distributed equally among the rising and declining price sagas.

The NASDAQ, for example, had an even number of up and downs in the declining years, but in the good years, the next day’s 12 increases outnumbered the 7 decreases. Similarly, the DJIA saw 10 declines and 8 gains in the falling price years but 5 declines and 14 increases in the recovery years.

DJIA              1.30 percent                               NASDAQ      1.53 percent                     S&P500          1.31 percent