With all three indices declining, yesterday’s good news became just a memory. August 2010 so far is a downer. The S&P500, for one, dropped from 1127.79 on August 2 to 1051.87 today. These last 17 trading days eroded its value 6.7 percent.
Looking at the record to evaluate this change, the evidence indicates the magnitude of this collapse. Of the more than 2,600 sessions since January 2000, there exist only 197 sequences in which prices eroded more steeply.
The diagram of the S&P500′s daily closes since 1996 uses a circle to indicate these occurrences. Surely they are not in evidence when prices are rising. Instead these 17-day-declines cluster together in bear markets.
Nevertheless, this identification fails as a reliable tool for predicting the direction of prices in the future. That’s because we find these days not only when the market is starting to fall, and when prices are dropping, but also immediately before prices turn higher.
Their projection value lies in recognizing their presence as revealing periods of unusual change; they identify churning prices, mostly during reversals but also when the trend of prices is about to become positive.
DJIA -.74 percent NASDAQ -1.09 percent
S&P500 -.77 percent