USMarketView

Today followed yesterday’s inter-session form, leaving the deeper, early losses behind, but nevertheless with the NASDAQ off   -1.07 percent, the S&P500 down  -.61 percent and a decline of  -.42 percent for the DJIA.

The pattern now stands at -3/+1, or three losses following Wednesday’s gain. Now the 54^th experience since 1950, and the 27^th in this decade, this configuration implies another loss for tomorrow – should the historical experience be replicated.

Even with the recent losses, this recovery, since the bottom of 2009, is keeping pace with the previous, 2003 to 2007, upturn. Today’s diagram compares the present price path of the S&P500 (red) with the 2003 (black) track, by overlaying one on the other. Currently 434 days since the bottom, little if any difference exists between these two experiences.

Of course this eye-balling fails to lock in the continuation of the past pattern. Indeed, one hopes that the current price path will scoot up faster – however, the record reveals that our present recovery has not lagged, but is similar to the rising prices of 2003/2007.  

DJIA                            -.42   percent

NASDAQ                 - 1.07   percent

S&P500                   -.61     percent

All the three indices fell as the week started; however they recovered from early losses deeper than -1 Percent, and ended the session with the S&P500 off  -.14 percent while the other two averages dropped  -.36 percent. 

Today’s decline, the second in a row since Thursday’s gain, yields a pattern of   -2/+1.  This combination has occurred 70 times since the beginning of 2000. It is the 9^th so far this year. Moreover, their frequency is far greater in bad times than in bull markets. The 2003 decline encountered 11 of these patterns; there were 10 in 2008.

While unease about the lack of price appreciation will surely hold back the market, today’s diagram reveals a common thread of this recovery with that of 2003. As noted before, the earlier path of the S&P500 decline had a steeper but shorter loss profile than in 2000. Yet, while that pace has slowed since April, the similarity of the current path with that of the previous recovery seems well matched.

DJIA                            -.36   percent

NASDAQ                    -.37   percent

S&P500                    -.14   percent

Falling prices reversed the market’s direction for the fourth time in the last four days – a pattern observed just 6 times in the past 11 years. Further, almost all of these occurred near the end of an upswing; indeed, one happened a few days after the October 2007 market top.

In the past, prices continued their decline on the following day 4 out of 6 times for the NASDAQ and the S&P500; the DJIA split evenly with 3 increases and 3 decreases.

Turning the focus to the Thanksgiving week, today’s market -the day after the holiday- turned higher 6 times over the last 10 years. On the following Monday, the NASDAQ rose 5 times and fell the other 5 days. The DJIA and the S&P500, while almost evenly split, had 6 declines and 4 increases.

DJIA                                              -.85   percent
NASDAQ                                       -.34   percent
S&P500                                         -.75   percent

Today’s advances wiped out yesterday’s losses – and all three averages closed higher than on Tuesday. The NASDAQ had the best comeback, gaining 1.93 percent and recovered further than its previous -1.46 percent decline.

The last several sessions traded large losses and large gains to the extent that the NASDAQ has had a net advance of one percent. Neither the DJIA nor the S&P500 did as well, ending slightly lower than at the start.

There have been six other such episodes of large losses and offsetting advances stretching over eight days in the 21^st century. The S&P500 diagram marks these with vertical lines.

Using these to generate a non-quantitative, or eye balling, projection can result in widely varying forecasts. Since all but one occur while prices are trending down, one view could associate these with expectations of future declines, ending the current price recovery.

Another, just as valid and subjective as the decline prediction, focuses on the price changes almost immediately after these offsetting cycles. Clearly most of these predate troughs and a trend of rising prices.

Moreover, neither of these two projections may develop; and hindsight will allow a further, better forecast. Nevertheless, just looking at this history generates aspirations of a way to convert what has been to what will be.

Enjoy your holiday!

DJIA                                                     1.37 percent

NASDAQ                                            1.93 percent

S&P500                                             1.49 percent

Prices fell near -1.5 percent, replicating the drop on Tuesday of last week. And that reversal came on the heels of the losses of the Friday before.

Today’s closes are -1.46 percent for the NASDAQ, -1.43 percent for the S&P500, and -1.27 for the DJIA. The resulting pattern of two losses in a row for the DJIA and the S&P500, combined with the NASDAQ’s single decline, occurred 180 times in past 60 years. The count in this century, including today, stands at 30.

Considering the results of these last 29 happenings on the following day, yields an optimistic outlook for tomorrow. Both the DJIA and the S&P500 scored 21 advances against 8 declines. The NASDAQ trails this record, having only 17 advances and 12 losses.

However, these next day results span a wide range; the NASDAQ varies from losing 3 percent to adding 5 percent! The other two averages experienced similar large spans, from losses to gains.

Turning to the performance during the Thanksgiving week, tomorrow, the last trading date before the holiday, the three indices rose 7 days, declining just three times in the past ten years.

For readers not planning to look at tomorrow’s analysis, the score for the day after also favors gains by a large margin.

Completing its fourth straight advance, the NASDAQ gained .55 percent; whereas the DJIA and the S&P500 fell -.22 and -.16 percent. The resulting NASDAQ pattern of +4, the -1/+3 for the S&P500 and the -1/+2 for the DJIA, has occurred four other times in this century. In the past, all three indices fell three times on the four following days.

Another historical fact of this pattern is that all four of these past closes accompanied a trend of rising prices.

However, focusing only on the coming market closing for Thanksgiving in just three days, the record for the past ten years shows the DJIA moving ahead seven times, and the S&P500 rising six times. The NASDAQ, however, lost on seven days and moving higher just three times.

 Relaxing from the substantial appreciation of Thursday, today’s prices closed fractionally higher. The pattern of three straight gains for the NASDAQ and the S&P500, and two days for the DJIA, is its seventh repeat in this century. The next day, in the past, for this pattern showed four declines and three increases.

The market will be closed Thursday of the coming week for Thanksgiving. Since the year 2000, the first day of the holiday week, saw prices rising more often than falling. The NASDAQ record has 8 increases and 2 decreases on Mondays over the past ten years. Both the DJIA and the S&P500 have almost as strong a record with 7 advances and 3 declines.

Noticeably, these two projections -one based on the pattern, the other on the past ten Mondays before Thanksgiving- provide opposite expectations. While passing on both, note that the performance of the pattern sequence provides a far smaller margin than the Thanksgiving based projection.

 DJIA                     .20 percent

NASDAQ               .15 percent

S&P500                  .25 percent

Starting with a surge of nearly two percent, the day ended with all three averages gaining more than 1.5 percent. The NASDAQ had 18 gains this size, or larger, in the 200 plus market days so far in 2010. The other two averages, not far behind this pace, scored almost as many. The S&P500 had 17 while the DJIA managed 15.

This is good news, obviously; nevertheless it need not indicate ‘a piece of cake’ ahead, since an association between the size of daily gains and the level of closing prices is neither systematic nor statistically significant.

Today’s pattern, of +2 for the NASDAQ and the S&P500, and +1 for the DJIA, happened three previous times this year. But these averages moved higher only once, declining twice.

Thirteen other sessions with this pattern occurred between 2000 and 2009; while the next day’s gains outnumber declines, the margin, at plus 7 days and minus 6, is not impressive.

Prices changed direction more than once as the day ended with the DJIA losing -.14 percent, the S&P500 up just .02 percent, and the NASDAQ gaining .25 percent. The only remarkable factor of this combination is the diversity of direction. Moreover, in this century the DJIA has fallen 142 times while the S&P500 higher; the count for the negative DJIA and the positive NASDAQ changes is 274.

Accordingly, focus on this diversity contributes little to understanding market changes. On the other hand, the fact that prices did not diverge, nor ended substantially lower, or higher, seems to indicate a pause while a consensus awaits evaluation of the divergent, underlying forces affecting asset prices.

Note how these three indices have reacted since October 4. Then the NASDAQ had recovered 84 percent of its 2007 high; now it stands near 90 percent. The DJIA moved from 76 percent to 79 percent, and the S&P500 reached 77 percent, considerably higher than its October close of 73 percent.

The NASDAQ lost -1.75 percent and closed lower for the fourth successive session. The S&P500, similarly down for the fourth day in a row, dropped -1.62 percent. While the DJIA dropped -1.29 percent today, it did not experience a long string of daily declines.

While all three averages suffered their largest decline in a month, today’s pattern seems a more relevant indicator. The NASDAQ and S&P500 pattern count of -4 (straight negative closes) combined with the DJIA of -1 (negative close) is only the fifth ever – though the last four happened between September 2008 and June of this year.

The 2008 event coincides with the sharp continuation of the October 2007 decline. The next, February 2009, occasion preceded the last bottom, in March 2009. The following incident marked the bottom of a short decline later in 2009, whereas the last, June 25, 2010, repeat came as prices reached a temporary low, after this April’s peak.

Therefore, even though no specific cause and effect relationship about price changes is justified, these data reveal that today’s pattern has preceded major changes in the market’s direction.