Archive for August, 2010

August 16, 2010 — Small Changes Add to Uncertainty

Monday, August 16th, 2010


Near zero, but opposite, changes in the DJIA and the S&P500 while the NASDAQ advanced .39 percent occurred two times ahead of the October 2007 high. Yet the time between these closes –at the end of October 2006 and of May 2007- and the October 9, 2007 top, seems longer than desired to be a meaningful advance signal. Since their relationship to future prices is vague and hazy, these indicators generate current hesitancy instead of insights to the future. Insignificant prices changes moreover, add to –or result from- this uncertainty.

0816-small-changes.GIF

Diagram reveals that small change days -between -.03 and +.03 percent- cluster at market tops; that they occur rarely at lower turning points. 

Furthermore, today’s fifth decline in a row of the DJIA combined with the first gain in five days for the NASDAQ and the S&P500, yield a pattern seen only 8 times before. Just 2 of these crossed the tape since the beginning of 2000.  Chances of an advance tomorrow, based on the past, are good since the advance to decline ratio has been almost 3:1. 

DJIA                   -.01 percentNASDAQ             .39 percentS&P500               .01 percent

August 13, 2010 — Do Four Declines in a Row Spell Recovery?

Saturday, August 14th, 2010


Friday the 13th left the market down for the fourth straight day – a close so rare that it became only the 13th since January 2000 and the 47th going back to 1950. Of course this negative run renews the pessimism that accompanies a weak recovery featuring substantial long term unemployment. Yet a glance at the following diagram reveals that many, if not most, four day declines accompany, even precede a strong improvement in market prices.

8-13-four-declines-in-a-row.GIF

Four of the runs took place at the bottom of the 2003 decline. Another hit in March 2009, just as the 2007 decline ended. Moreover this sequence shows up also during short term reversals in the rise of prices between 1993 and the top of 2000.Finally, except for the one happening after the October 2007 top, none of these four declines in a row appear before a market decline.Hence it would be premature to interpret the current negative run as signaling a market top with a further erosion of values in the near future. 

For the record, note that the deepest drop on record –more than  - 20 percent in  one day- also struck on the fourth straight decline in October 1987. 

 DJIA    -.16 percent   NASDAQ    -.77 percent  S&P500       -.40  percent

August 11, 2010 Deepest Losses since July 16

Wednesday, August 11th, 2010


Today’s market dropped more than -3.00 percent for the NASDAQ; the S&P500 was off – 2.82 percent while the DJIA fell -2.82 percent. Evaluating the severity of this setback by counting the number of worse losses than today yields these results. For the S&P500, only 69 sessions since January 2000 closed further down; for the DJIA, the number is 76. The NASDAQ rank of 218 is not comparable because of its steep computer related correction.

 aug-11-nasdaq-losses-deep-as-today.GIF

  

The first diagram shows the NASDAQ closing prices for the past ten plus years.  The red markings identify the dates on which this index suffered deeper declines than today. It takes only a quick scan to notice that almost all came when the trend of prices is down. Only three occurred during the long 2003 to 2007 bull market. Furthermore, the records of the DJIA and the S&P500 display near identical conduct: losses this deep accompany falling prices.

Yet such forecasting, motivated by the simple projection of serious losses as today’s, would be imprudent. Consider the time paths of the S&P500 in the second diagram. While today’s drop is its worse since May 6, sharp price rises followed all previous incidents. In addition, note that their frequency –the number of days between their reoccurrence- remains in the same range. The next diagram illustrates this distinction.

 081110-intervals-between-large-losses.GIF

Accordingly, using the rough criterion that deep losses characteristically precede further declines fails to provide reliable information in the short run. This defining difference, between the cluster of incidents during price declines of the NASDAQ profile, and the short term resurgences of the S&P500, indicates that a mere counting of events provides little, if any, guidance in projecting changes in the near term.  DJIA     -2.49 percent     NASDAQ   -3.01 percent  S&P500   -2.82 percent

August 10, 2010 Decline Wipes Out Monday’s Gain

Tuesday, August 10th, 2010

See-Sawing once again wiped out yesterday’s increases: the NASDAQ dropped  -1.24 percent, the S&P500 lost -.60 percent while the DJIA fell  -.51 percent. So the one step forward and one step backward phase goes on for another day. Yet the continuity of these wavelike changes must not let us fail to observe that the impact is different for each of these three indices.0810-diff-impact-of-price-changes.GIF

Today’s diagram concentrates on the proportion  that each day’s price bears to its 2007 high. The loss that each index suffered is about the same during the decline and for the early part of the recovery. But then the NASDAQ spurted relative to the DJIA and the S&P500; by mid-April the NASDAQ had recovered  90 percent of its October 2007 high. Yet the DJIA and the S&P500 lagged behind: each of these stood at 79 percent.  However the faster paced NASDAQ recovery lost momentum.

At the end of today’s trading, that 11 point advantage had shrunk to just 6 for the DJIA and 9 percentage points for the S&P500.

Focus not just on the decline in the recovery rate since April; concentrate also on its differential impact. Those ratios tell their own story. Given the persistent doubt about the economy’s resurgence, continuing unemployment and opposing views on inflation or  deflation  ahead, these will influence each index differently – as demonstrated by today’s lack of uniformity. 

 DJIA                   -.51 percent NASDAQ           -1.24 percent

S&P500             -  .60 percent 

August 9, 2010 Prices Recoup Some Losses as See-Saw Continues

Monday, August 9th, 2010

By now the ongoing repetitions of advances after declines … after advances seem inescapable even if these sequences cannot be predetermined. Yet today’s pattern for the three indices at +1/-2/+1 is only the second occurrence since the beginning of 2000; it is the sixth since 1950. The fact that the number of adjacent positive and negative sessions, that is either +1/-1 or        -1/+1, amount to 449 in the past 10 plus years explains this apparent contradiction.

Given these quirks, today’s blog focuses on similarities and differences between the current path of prices and those of the last, previous downturn that started in October 2007. The initiating point of the comparison is the last high of this market, on April 23rd, the 47th session of this year.  The bottom line of the graph shows the S&P500’s daily closing prices for the current sequence. The top line displays the 2007 cycle.

aug-9-2010-compare-with-2007-cycle.GIF

At this moment the 2010 series stops on the 147th trading day of the year, while the top line of 2007 and 2008 prices continues, yet does not include the entire cycle of 355 days from top to bottom.

Do these paths provide clues to this market’s future? Obviously despite the many similarities, the answer to this enquiry turns on personal viewpoints and subjective values. Yet, the availability and comparison of these time paths, and of their distribution of adjacent up and down days, provides objective, numerical data to assist our individual search for what will happen in the future.

DJIA                    .42 percent

NASDAQ             .75 percent

S&P500               .55 percent

August 6, 2010 — Another Decline

Saturday, August 7th, 2010


August 6, 2010  

   Data Problems Cancelled August 4 and August 5 Posts

Prices fell for the second day in a row: the S&P500 lost  -.37 percent and both the DJIA and the NASDAQ dropped -.20 percent. The pattern for the past four days,  -2/+1/-1, is the 47th repeat since 1950 and the 25th since January 2000. The diagram of the S&P500 illustrates this record with a triangle marking these dates.

While no significant differences exist in their frequency over good and bad times, the average loss on these dates does vary between rising and falling markets. Looking at these, in the bottom line of numbers underneath the graph, reveals deeper average losses when prices are falling.

 0806-neg-2-plus-1-neg-1.GIF

During the ten incidents of the 2003/2007 bull market, for example, the average percentage change for these days is minus .80 percent, while the previous decline shows a  -1.11 percent average. Similarly, this present recovery period has a  -1.27 percent daily decline, which is not as deep as the  -1.96 percent average of the 2007/2009 decline.

Two other features deserve attention. Today marks the 354th session since prices hit bottom on March 3, 2009; a period equal in length to the 2007/2009 decline.

Furthermore, the frequency count of today’s pattern -46 since 1950- has returned to larger numbers. Contrary to the recent experiences of just one, two or three other such runs in the past. Accordingly, they allow greater reliance for projections based on past results.

DJIA                    -.20 percent

NASDAQ             -.20 percent

S&P500               -.37 percent

August 5, 2010 Sorry — Data File Still Down

Thursday, August 5th, 2010

August 4, 2010

Wednesday, August 4th, 2010

No Post Today — Computer Trouble

August 3, 2010 The Market’s Past and Future

Tuesday, August 3rd, 2010

 


Once again prices failed to sustain the upward momentum; instead, they retreated after yesterday’s strong showing. The decline, as so often before, was not deep –indeed the NASDAQ lost  -.52 percent, the S&P500 fell – .48 percent and the DJIA was off just  -.36 percent- nevertheless, it broke what otherwise might have been the beginning of a smart chain of gains.

Consequently the indices posted their 1,038th repeat of up one day and down the next – or -1/+1 in our pattern shorthand; it was the 414th since the beginning of 2000.  As if history were confirming the see-saw of daily changes, the following day these three indices recovered 189 times, continuing on the downward path 143 times. (The price change for the remaining observations was not uniform – not in the same direction- for the individual index.)Yet these swings far from being unique to the 2010 market also pervaded the last recovery between 2003 and 2007.

 aug-3-2010-current-and-past-cycles-from-top.GIF

The diagram plots the daily price of that period on the same diagram as the current cycle. It shows, as we have observed before, the earlier but deeper turning point in 2009. Nevertheless, only 20 more trading days exist before the earlier decline finally ended.

An optimistic view of these time paths would be not to be concerned with the current backtracking, until the long anticipated resurgence is delayed beyond that point.  Another, rival interpretation believes current prices in fact are parallel to the first cycle, and that their deviations result simply from the somewhat different path of their recoveries.

Obviously, having only two alternatives fails to consider the many other possible insights out there. Certainly, do not overlook the widely held belief that stock prices move independently of past experiences.

 

DJIA                    -.36 percent

NASDAQ             -.52 percent

S&P500               -.48 percent

August 2, 2010 — Best Day in Seven

Monday, August 2nd, 2010

Rising more than two percent, the S&P500 led the way, up by 2.20 percent. The DJIA followed with a 1.99 percent gain while the NASDAQ moved plus 1.80 percent.  Moreover, all three indices now stand above their July 22 close, seven days ago.

With these gains, the pattern is +1/-3 for the DADJ; both the NASDAQ and the S&P500 are at +2/-3. At present the count for this combination comes to 41 overall and 13 since the turn of 2000.

Importantly, today’s DJIA and the S&P500 increases are the largest on record for this pattern.

Continuing our focus on the placement of today’s result during previous price cycles, note that 8 of these 13 closes came during the 2003/2007 expansion;  four of the other five were during the 2000/2003 contraction with the last one before today coming in the 2007/2009 contraction.  Accordingly, these sequences continue the previous showing that current runs mirror rising, rather than falling, price trends. In addition, only seven closes this year exceed today’s increases of these two averages; the NASDAQ, because of its smaller advance, had nine days with larger percentage changes.

The prospects for Tuesday, the following day, based on the history of these 13 pervious occurrences, while promising, fails to yield a substantial edge for further gains. Whereas the DJIA moved higher eight times, the other two increased only seven times, and fell on six.  

DJIA     1.99 percent   NASDAQ     1.80 percent    S&P500           2.20 percent