Down most of the day, at the close the S&P500 lost -.57 percent, the NASDAQ fell -.48 percent and the DJIA was off -.44 percent. While intuition might see such downgrades as not unusual after a rally as strong as Friday’s, the pattern of the past five trading days indicates caution ahead.
Daily changes going back to Monday of last week, summarized as -1/+1/-3, followed a pattern recorded only twice since 1950, the beginning of our data base. The figure identifies these incidents plus today’s close with vertical lines on the S&P500 closing prices.
Both of these earlier happenings preceded substantial rallies, which were followed, however by large declines. The recent January to April run-up, for example, suffered substantial declines, which still leave today’s values below that high.
Looking at the only other experience of -1/+1/-3, in 2002, reveals an even more telling case. A large, further bear market materialized thereafter, and prices continued their decline to March 2003 before values hit bottom.
DJIA - .44 percent
NASDAQ - .48 percent
S&P500 - .57 percent