The sharp rise in prices started early; it did not stall, and at the close indices had their best showing in 10 trading days. The S&P500 led the advance with a 2.95 percent move; the NASDAQ was not far behind, gaining 2.77 percent while the DJIA moved 2.76 percent. Further, the NASDAQ scoring its first uptick in five sessions now has a pattern of +1/-4. The DJIA and the S&P500 sequence, after yesterdays losses, now is +1/-1.
The market thus continues its unusual pattern with todays arrangement only the 12th overall and the fourth since January 2000. In the past, the day following this pattern, prices rose almost as often as they declined. Yet in the four latest, previous occasions, they declined three times, increasing only once.
Thus Thus the markets variability remains sizeable. This variance provides a useful tool for anticipating price movements. The accompanying diagram graphs the DJIA closing prices and their daily rate of change since 2000. Substantial price declines associate with greater variability in the daily rate of change, especially when prices experience substantial deterioration. The drop in the 2000/2007 cycle reveals that the daily rates of change diffusing as prices decline. Similarly, the same pattern of greater variability occurred during the 2007/2009 bear phase.
The recent increase in the variability of the daily rate of change thus can be taken as a warning sign. Yet, since this enlargement remains considerably smaller than during the two major prices erosions earlier in the decade, this widening should not be interpreted as an advance signal of prices falling in the future.
DJIA 2.76 percent
NASDAQ 2.77 percent
S&P500 2.95 percent