Archive for November, 2010

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Tuesday, November 16th, 2010

November 15, 2010 Not Much Change — Plus Two Rallies

Monday, November 15th, 2010

 

 

Prices moved higher for most of the day but by the close, they stayed at Friday’s levels. While the DJIA moved up .08 percent, -.17 percent was shaved off the NASDAQ, and -.12 percent off the S&P500. The resulting pattern -three straight declines for the NASDAQ and S&P500; a plus day for the DJIA- is the 18th repeat since 1950 but only the 8th in this century.

 

Losses outnumbered gains on the following day, since January 2010; furthermore, the last four incidents were all negative.

 

Almost ‘identical’ describes this year’s two rallies. The earlier upswing lasted 55 days; so far, the current increase also stands at 55. Of course, only the future will reveal whether it also halted at this point.

 

 

 

 

 

 

 

 

 

 

 

Additionally, the figure reveals a singular similarity in their daily advances. The blue dots (the February to April rally) and the red ones (the current, August plus trend) cover not only the identical price range but also the same number of days. Indeed most of the 55 blue dots seem interchangeable with the 55 red ones.

 

A word of caution, however: at this point all we know is the similarity so far this year; that’s nice to know, but it’s not a forecast.

 

 

 

DJIA                                               .08 percent

NASDAQ                                      -.17 percent

S&P500                                      -.12 percent

 

November 12, 2010 Coincidence or Crisis?

Saturday, November 13th, 2010

Don’t focus on losses suffered in the past two days, but do consider the pattern of this week’s price changes.

Both the DJIA and the S&P500 started and ended with two declines in a row, while their prices moved higher                                                                      on Wednesday. The NASDAQ pattern was slightly different, given its .04 percent rise on Monday. The only two                                                                   other closes, since 2000, having this pattern are highlighted on the diagram by vertical red lines.

11122010-d-and-s-down-2-up-1-down-2-nasda-down-2-up1-down-1.gif

Both happened immediately before prices turned down; both ended a period of rising prices.                                                                                               This -today’s-  third occasion need not follow the earlier disastrous price declines. Yet prudence suggests caution, while hope claims that parallels do not a forecast make.

 

DJIA                       - .80

NASDAQ                -1.46

S&P500                -1.18

 

November 11, 2010 Prices Decline

Thursday, November 11th, 2010

A negative day from the start, left the NASDAQ with a -.90 percent loss, the DJIA fell .65 percent and cut the S&P500′s value by -.42 percent. Yet the very uncommonness of these declines helps to see the significance of the recent advance. It is only the second decline in the last 17 sessions for the NASDAQ and the DJIA; it is the fourth minus in ten days for the laggard S&P500.

 

At this point, questions about the market’s direction, seem premature, even though the week scored only one increase – on Wednesday. Considering the length, and the magnitude, of gains since September, a pause does not seem unreasonable. Nevertheless, despite the recent run-up, a decline can not be ruled out.

 

The historical record of yesterday’s pattern, an almost equal proportion of declines and increases, failed to provide strong support for projecting lower or higher prices for this session.

 

Today’s pattern, however, tilts strongly in the negative direction, although the five incidents in this century were evenly divided between advances and declines.

 

 

DJIA                                            -.65 percent

NASDAQ                                    -.90 percent

S&P500                                    -.42 percent

 

November 10, 2010 Prices Close Higher

Wednesday, November 10th, 2010

 

 

Prices fell at the start, but then recovered and ended with gains for the day, as the three averages reversed some of their losses of the day before. The NASDAQ rose .62 percent and the S&P500 moved up .44 percent; the DJIA, at plus .09 percent, managed to stay in positive territory.

 

Adding yesterday’s action to this mix results in a +1/-1 pattern, a configuration seen just 66 times since 1950, 16 of which occurred in this century. Results on the day following, in the past, divided almost equally, with 9 gains and 7 declines for the DJIA and the S&P500; the NASDAQ scored 10 gains against six declines.

 

The projection for today, based on the history of yesterday’s pattern, came out consistent with its large plurality of gains over losses.

 

Many negative and pessimistic comments on the Fed’s intended $600 billion purchase of existing Treasury bonds focus on the resulting increase of the money supply and fears of inflation. Yet rising prices would help the economy – these would enhance profits, and lead to increases in production. That situation, in turn, requires more labor input, meaning an increase in employment and a decline in unemployment.

 

Modest advances in prices enhance the business climate and encourage production and consumer purchases. (Just imagine the impact of rising prices on the paralyzed housing market.) Moreover, the output and income lost from unemployment cannot be regained — ever. Putting our underutilized resources back to production will increase society’s well being without incurring any real cost to the nation.

 

DJIA                                  .09 percent

NASDAQ                          .62 percent

S&P500                           .44 percent

November 9, 2010 – First NASDAQ Loss in Six Days

Tuesday, November 9th, 2010

Declining by -.66 percent and breaking a string of five consecutive gains, the NASDAQ joined the other two averages which experienced their second successive loss today. This yields a pattern seen 179 times before, with 28 happening in this century.

Considering only the latest 28 sessions, the NASDAQ posted 16 further losses and 12 increases. The DJIA and the S&P500 record, however, shows 20 increases and only 8 declines.

 

Differentiating this history by bull and bear periods, shows the two down periods -2000/2003 and 2007/2009- with a smaller share of this pattern than the rising prices segments. But these differences are not sufficiently significant to conclude that the market’s current rise will continue.

 

 

 

DJIA                     -.53 percent

NASDAQ              -.66 percent

S&P500               -.81 percent

 

 

November 8, 2010 Todays’ Results Plus

Monday, November 8th, 2010

Today’s Results Plus

Federal Reserve Purchases of Existing Bonds Means Falling Interest Rates

 

The market shaved DJIA and S&P500 prices by -.33 and -.21 percent as these two averages declined for the first time in six (DJIA) and five(S&P500) sessions. The NASDAQ gained .04 percent for its fifth consecutive close. On the following day, all three indices moved ahead five times and declined on three days.

*                      *                   *            * 

Most people recognize the relationship between asset prices and the income earned by the asset. For example, an annual dividend of $200 on a $10,000 savings bank deposit results in a yield of 2 percent. That is, multiplying the $10,000 balance by the .02 dividend rate, results in a payment of $200. Or expressing this relationship in symbols,

 

Capital X Rate of Interest = Income.

 

Manipulate this statement by dividing both sides by the Rate of Interest, results in the following restatement

    Capital   =    Income/Rate of Interest.

The fact that U.S. Treasury bonds, as well as most other bonds, pay a fixed annual dollar return for their entire life span means that a direct, but inverse link ties the interest rate to the capital value, or price, of the bond.

Now add three dynamic connections to this network of Capital Value, Income and the Rate of Interest.

One, the only way the Fed can acquire ownership of existing U. S. Treasury bonds is by bidding up the price enough so that current holders of these bonds willingly exchange their bond holdings for Federal Reserve checks,

Two, given the fixed relationship between capital value, interest rates, and the unchanging yearly payment by the U.S. Treasury, interest rates fall as the Fed bids up the price, or capital value, of these bonds,

Three, since all financial capital is interchangeable, the value of all other assets will appreciate along with the rising prices of U.S. Treasury bonds. (Note that each individual asset’s value depends on its risk particular factors and anticipated earnings.)

November 5, 2010 Why the Upbeat Continues

Sunday, November 7th, 2010

 

With the DJIA gaining .08 percent, closing higher for the 6th consecutive day; the S&P500, up .39 percent, posting its 5th gain in a row; and the NASDAQ’s plus .06 percent, scoring its 4th successive increase, the averages went on with the unique situation of uneven daily, patterns. Accordingly, no historical comparison is possible since no other such situations can be found in our 1950 on data base.

 

Commentators and news readers have called on many different ’causes’ to explain the market’s run-up, which scored its largest advance yesterday. Yet their focus fails to consider appropriately the Fed announcing its intentions to purchase billions of dollars of outstanding Treasury bonds.

 

Whereas these so called ‘open market operations’ have been the Fed’s most effective monetary policy tool for many years, their immediate impact is to enhance the value of existing assets. Therefore, while the eventual result of the Fed’s purchase of existing Treasuries should lead to the higher employment, output and income, causing higher business earnings in the future, that underlie higher stock prices, the instant result is higher prices for all assets.

 

The simplest explanation for the immediate higher asset valuations uses the higher demand for existing assets, caused by the Fed’s purchases, to rationalize this result. Since almost all asset prices are tiered, as an accordion, to each other, then, they all increase, almost simultaneously, once the bottom, basic Treasury rate declines.

 

 

 

 

DJIA                               .08 percent

NASDAQ                       .06 percent

S&P500                        .39 percent

November 4 ALTERNATE, 2010 Best Day Since September 1

Thursday, November 4th, 2010

Gaining nearly two percent, the DJIA and the S&P500 outperformed the 1.46 percent NASDAQ advance. Not a usual combination understates its rarity: while the NASDAQ scored 439 increases greater than 1.9 percent since 2000, the S&P500 had only 157 and the DJIA managed just 143 closes. Furthermore, a total of 122 days in this century occurred with all three indices closing with today’s combination.

 

One need not be an optimist to interpret this upbeat result as confirmation that the rise in prices -interrupted after the April top– will continue.

Furthermore, the diagram shows these events  cluster at the lower turning points of the last two cycles, enforcing the expectation of future rising prices.

Yet these data also support another, contrary projection.  another v of thesThe fact most events Such intepretationStrenghtening  

 

 a look at the market circumstances surrounding each of these 122 events suggests caution. The diagram identifies these dates with a circle; the vertical lines separate the bull and bear trends.

last-11042010-s-and-d-over-19-n-over-146.gif

That most of these ‘good’ events accompanied falling price trends is obvious. However, the current period, since the March 2009 recovery, has a greater proportion of this combination, 6.44 percent, than the 5.80 percent of the 2000/2003 bear market.

 

These statistics indeed are a shock – turning apparent good news into a warning of possible price declines.

 

 

 

 

DJIA                            1.96 percent

NASDAQ                     1.46 percent

S&P500                     1.93 percent

November 3, 2010 NASDAQ Less than 10 Percent Off 2007 Top

Wednesday, November 3rd, 2010

The recent small daily changes may have obscured the extensive recovery of prices to their peak, October 2007 levels. At the close today, the NASDAQ reached 90.8 percent of its last high. Now less than 300 points separate this index from surpassing its 2811.61 previous 2007 mark. Moreover, at the end of the day, the NASDAQ surpassed its previous recovery rate of 90.2 percent in April.

 

11022010-percent-of-2007-high.gif

The diagram reveals the substantial margin of the NASDAQ recovery, compared to the DJIA and the S&P500. These stand at 79.0 percent and 76.3 percent of their October 2007 peaks. Further, these remain below their levels reached when prices peaked on April 23,

 

Turning to the pattern of closes, the indices continued their recent run of rare, unusual combinations, with the DJIA scoring its fourth successive gain, and the S&P 500 at three straight advances, while the NASDAQ reached two upticks in a row. Only two other days, in 1984 and 1996, share this feature. This minute sample size precludes any meaningful generalization describing possible future repeats.

 

DJIA                               .24 percent

NASDAQ                       .27 percent

S&P500                        .37 percent