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The NASDAQ and the S&P500 closed down for the third successive day, losing  -.57 percent and  -.42 percent; the DJIA’s count of daily changes,  off  -.29 percent, now comes to two losses in a row.   So once again, prices continue to repeat their see-saw of down and up, lasting for a few days, only to replicate the same pattern, but in the opposite direction. Thus today’s prices remain more or less in the same place as 11 trading days, or two weeks, ago.Yet, despite the recent replications, the latest daily patterns of changes are few and far between. For example, today’s configuration has occurred just four other times in the past 11 years –while the 1950-1999 happenings come to no more than 14.Consequently the market continues to move within narrow boundaries since early this year, rising to a peak in April after January’s decline, and rebounding now from the earlier low this spring.Turning to tomorrow, in the past the day following this pattern, came in positive 10 times and negative about 8 times. Yet the NASADAQ and S&P500 count of increases rises to four for four since 2000, and the DJIA stands with three gains and one loss.   DJIA          - .29 percent     NASDAQ      - .57 percent  S&P500     - .42 percent

 The DJIA ended its four day streak, losing  -.38 percent, as the NASDAQ and the S&P500, suffered their second straight decline, dropping  -.36  and -.69 percent. It was the 14^th repeat of this combination since January 2000. Increases dominated the following day in the past; that count stands at plus eight and minus five. Furthermore, the record reveals only a single decline over the five recurrences since 2005.

No significant relationship exists for their timing over the last two growth and two decline phases. While four occurred during the 2000/2003 downturn, there were none in the 2007/2009 falloff.  Yet the expansions incidents reveal some cluster, with the 2003/2007 upturn having six such sessions and with three in the current segment.

Today’s diagram focuses on the course of the prices so far this year. We look at the relationship between changes in the direction of prices relative to the length of sequences of positive and negative runs in the same direction. The numbers on the diagram represent the number of days on which price changes have tracked the same up or down course.

Clearly, the minus one or plus one days as well as the minus two and plus two instances fail to reveal a correspondence between long lasting price trends – even though such numbers arise only when prices move in the opposite direction of the day before. But the price path definitely changes its course when the string runs to six, or even five, days in a row.

However further quantitative studies are indispensable prior to using these changes as guides for short term projections or trading. 

  DJIA     - .38 percent    NASDAQ   - .36 percent    S&P500      - .69 percent 

Although closing higher, the DJIA gained just .12 percent and while losing, the S&P500 dropped only -.10 percent. The NASDAQ, however, fell back  -.36 percent. We summarize this pattern as plus four for the DJIA and  -1/+3 for the other two indicators.Today’s price actions coincide almost perfectly with their historical averages. These are .12 percent for the DJIA,  -.12 percent for the S&P500 and  -.35 percent for the NASDAQ. Not a correlation seen often.

On the other hand though, this is a rare combination with only 13 previous appearances of which 8 occurred since January 2000.

The diagram plotting these later points indicates when they happened and that day’s S&P500’s rate of change. Unexpectedly the entire set shares the 2003/2007 expansion.  Yet it would be mistaken to declare today’s pattern as an indicator of good times ahead. A more somber interpretation comes from examining the price action in the neighborhood of these closes. True, the trend continues positive, yet invariably a decline is the immediate consequence. Moreover the last three of these happenings came shortly before the market reached its top in October 2007.These data, therefore, are facing in two opposite directions, with their positive trend consistent with overall growth and their immediate consequences negative.  

DJIA                    .12  percentNASDAQ           - .36  percentS&P500             - .10  percent

Another positive session, the third since last Thursday, pushed the NASDAQ up 1.19 percent, as the S&P500 increased  1.12 percent and the DJIA moved  .97 percent higher. Accordingly, the market now has a +3/-1/+2 pattern; or in words, today’s close is the third consecutive in the plus column, that came after a single loss, that followed two increases in a row.While today is the 23^rd close of this configuration, only 8 others came after 2007 with the 9^th, last previous such close, occurring at the end of the last decline.  Accordingly, Friday’s analysis remains in place –that such chains are frequent in bull markets, but not when the price trend down.But note that the dates of this current configuration are different, though only slightly, from the previous analysis. Three of these days came near the end of the 2003/2007 expansion, and a fourth one preceded the bottom of March 2009.This alternate assessment, however, provides an outlook that tempers Friday’s optimistic conclusion. And because markets do not continue their trends without interruptions, a pause like this generates a firmer belief in the underlying, long term projection.  

DJIA                    .97  percentNASDAQ           1.19  percentS&P500               .97  percent

 Priced moved higher for the second day in a row but with smaller gains than on Thursday. With the NASDAQ closing up  1.05 percent, the DJIA increasing  .99 percent, and the S&P500’s  .82 percent, the market scored its second up-for-two-days this week, with today’s gains just short of Tuesday’s. Thus the pattern for the week is +2/-1/+2 – that is two increases, after a decline that followed two straight gains.The record shows 30 such repetitions since 1950, with more than half, 18, happening since 2000. Noteworthy is that their incidence favors the recent past as well as rising price trends. Whereas not a single occasion appears during the entire period between 1950 and 1979, and only four over the following 20 years, all 18 are concentrated between 2003 and today.   

The diagram of the S&P500 indicates when these 18 days occurred: 13 while prices were on the rise during the 2003/2007 expansion and the other 5 over the following 2007/2009 decline.

Similarly, consider the price changes on the following day; both the NASDAQ and the S&P500 posted gains 10 times and fell on just 3 while prices were rising. During the following falloff in prices, the count goes the other way, with only 2 plus days but 3 declines on the next day.

Once more, the analysis of past patterns reveals that today’s profile, associated with rising values, supports a similar outlook for the future.  

 DJIA                    .99  percent

NASDAQ          1.05  percent S&P500               .82  percent

July 22, 2010 Largest Gain Since July 7Moving up by 1.99 percent and more, these indices posted the best day in the past 11 sessions. The NASDAQ gain of 2.68 percent ranks it as the 202^nd largest; the S&P500 increase of 2.25 percent stands in place 233 from the top; whereas the DJIA, just short of 2 percent, is number 340 from the top.

Significantly, today’s pattern of  +1/-1/+2, our notation for describing today’s gain, after yesterday’s loss, which occurred after two previous advances, counts as its 39th   repeat since January 2000. Almost all of these took place during the 2003/2007 bull market. Furthermore, only three of those closes had increases larger than today’s and exceed more than 2 percent.

Finally, those three previous, larger than two percent closes, came near the end of the 2007/2009 decline. Their dates are August 8, 2008; December 30, 2008; and January 21, 2009, while the markets hit bottom on March 9, 2009.

Consequently, we can infer that these developments precede further gains in the near term, provided that these changes reflect permanent features of the buyer and seller mindset. 

DJIA                    1.99  percent

NASDAQ            2.68  percent

S&P500               2.25  percent  

Today’s negative closes, after the two successive gains which started this week, is the 79^th repeat of the pattern -1/+2 since the beginning of 2000. These losses for the S&P500 – down minus 1.28 percent- the DJIA –off minus 1.07 percent-  and minus -1.58 percent for the NASDAQ, come in worse than the average of  the earlier changes. Before this close, the average losses were -.95 percent for the SD&P500, -.87 percent for the DJIA and – 1.16 percent of the NASDAQ.  Yet the worst losses experienced with this pattern fall in the range of  -4 to -5 percent.

On the day following, while increases beat the number of declines, the gap is far from substantial, running in the 55 percent area. The diagram positions the next day changes, by gains and losses, over the four phases of the past two cycles. 

Whereas the total count over the 2003/2007 expansion exceeds those of each of the two declines, the current period, since March 2009, does not. This configuration therefore fails to provide a guide to project the future. Moreover, the number of positive next day gains during the 2007/2009 decline exceeds those since March 2009. 

DJIA                    -  1.07  percent NASDAQ             - 1.58 percent

S&P500               -  1.28  percent 

The S&P500 led the market higher, gaining  1.14 percent with the NASDAQ’s second place gain of 1.10 percent. The laggard DJIA moved up .74 percent, also posting an improvement over yesterday. The record reveals just four other market days with this pattern since 1950, three of which crossed the tape since January 2000. Moreover today’s performance substantially outclasses almost all of those earlier ones – some with an almost threefold improvement.

Ranking all changes, regardless of pattern, since 2000 provides another way to evaluate this current performance. Taking the S&P500 data, shows only 358 gains exceeding today’s; further, almost 2,300 sessions posted smaller, or negative, changes.

The standings of the NASDAQ and the DJIA, similar to each other, lag behind the S&P500. Both show almost 550 sessions ahead of today’s gains, with more than 2,600 smaller or negative.

Accordingly these date support the conclusion that the current results rank quite high even though they seem modest relative to more substantial but less frequent gains.  DJIA          .74 percent         NASDAQ      1.10 percent       S&P500         1.14  percent

Prices, up most of the day, maintained their gains as the DJIA, the NASDAQ and the S&P500 each posted their first positive gain. Both the DJIA and the NASDAQ came back from two successive declines, while the S&P500 moved higher after Friday’s decline. Accordingly, with the S&P500 closing pattern of    +1/-1 and the other two averages at +1/-2, today’s post focuses on the characteristics of each index in the past.

First, such patterns occurred  446 times since January 2000. Second, none of these happened on days when the previous close was one down for the S&P500 and two down for the DJIA and the NASDAQ.More importantly, for the purpose of attempting to understand how prices could move in the future, consider this relationship with respect to past market declines and expansions.

Classifying these 400 some closes, as shown in today’s table, reveals a greater proportion of advances, on the following day, when the trend of prices is up.

In the first expansion,  47.5 percent of next day closes showed another increase for these three indices. The second, current growth period has 44.1 percent all three indices gaining on the next day.

This record stands in sharp contrast to this same measure during periods of falling prices. These ratios are 37.8 and 38.4 percent. Of course, remember that the ‘current period’ or ‘current expansion’ covers the phase right now. Thus, these tendencies enable a peek at the future; if this proportion remains at present levels, it can be used as justification for projecting further gains. Or, on the other hand, if the ratio of positive next day closes falls, it can be taken to anticipate a future decline of the market.  DJIA    .56  percent        NASDAQ   .88  percent    S&P500  .60  percent

Today’s closes, so different from Thursday’s and so much larger in size, require a review of past incidents sharing a similar pattern. But first, look at the summary of Friday’s activity. The NASDAQ fell  -3.11 percent, followed by the S&P500 down -2.88 percent and the DJIA’s loss of -2.62 percent.

The record shows the NASDAQ with 131 other closes this deep since January 2000, whereas both the DJIA and the S&P500 have 67 such days. Furthermore, there are just 46 sessions in which all three of the indices simultaneously deteriorated further than they fell today. Next, turning to the pattern, with the S&P500 down a single day, and the DJIA and the NASDAQ falling for the second straight day, the data reveal only 9 since 2000; and, in addition, in the past, increases outnumbered declines 2:1.

Yet the more critical insight results from classifying these loss occasions in terms of market dynamics: when prices are tending higher and when the trend of prices is down. The diagram displays these occasions. The vertical lines divide these trends, whereas each occasion is marked with a green triangle or a red circle.  The red circle indicating sessions like today’s –with each of the index losses deeper than today’s- and the green triangle represent days on which all three indices increased more than today.

This history reveals that large losses as well as large gains dominate declining markets. That is, nine days worse than today’s and 17 days with larger absolute gains, for a total of 26 occur during the 2000/2003 decline. But only two of each happened while prices headed up between 2003 and 2007. Similarly, the following decline has a total of 49 such large changes, whereas they occur 15 times in the 338 trading days since the March 2009 low.

Of course it would be foolhardy to use just a single, aggregated indicator to divine the future of prices; yet the configuration or arrangement of these data points do imply that large daily changes, in both directions, repeat more often when prices are falling.   DJIA              - 2.52  percent   NASDAQ      - 3.11  percent    S&P500        -2.88  percent