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The NASDAQ lost  -2.48 percent on Friday, while the S&P500 fell  -1.79 percent and the DJIA declined  -1.39 percent. There have been only 122 fall offs this deep since 2000; the count between 1950 and 1999 is much smaller, with only 41 declines this large or larger.

The date show that changes this negative are features of substantial and lengthy market declines. None, for example, happened between 2004 and 2006. And 2007 had a mere 5 such closes, though that price decline occurred in October.

Furthermore, 61 declines of this magnitude came during the decline of 2007 through 2009.

Yet, the record for the following day reveals substantially more stability and smaller losses, on the average. The median change in the past 11 years is -.09 percent for the NASDAQ; but plus .25 percent for the DJIUA and the S&P500. Nevertheless, the range of next day changes is much larger; they run from -5.8 to -7.9 percent for the NASDAQ, and from -5.6 to -6.9 percent for the DJIA and the S&P500.

One other feature deserves consideration; not a single decline of this depth occurred during the expansion years from 2004 through 2006.

DJIA                    -1.39  percent

NASDAQ            -2.48  percent

S&P500                -1.79  percent

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More of the same describes today’s market action –but that fails to answer ‘why prices continue to move higher in small steps.’ So far, our analysis has not found an answer. Instead, we focus on 1) the ongoing recovery and 2) the distance –in time and price- before values return to their previous high of March 2000.

We apply a measure better than absolute values. Such as ‘the S&P has recovered to the 1,300 level’ or ‘the last time the DJIA reached 12,000.’  These look back; we want measures providing better and deeper insights. A simple, yet sophisticated standard that uses the past to conjecture the future.

Consider the S&P500 and its price action in the previous, 2000/2007, price cycle.  At today’s close, just below 1,300,  this index has recovered 83 percent of its previous, March 2000, high. The diagram displays this information, as well as revealing the horizon of future price expectations.

That operating at the previous speed and strength, it requires 364 trading to days to reach the previous all time, 2000, high. Consequently, there is ample time to recapture previous values.

There is no need to rush an order – and there is history to confirm that plenty of headroom remains for appreciation.

Naturally, using these statistics requires human input and evaluation. Otherwise, for example, the NASDAQ, closing today at just 28.5 percent of its 2000 peak, appears to have an even higher limit. However, action on that basis alone means overlooking all the information history offers: that high was the result of, and occurred before, the correction for the internet/computer boom.

DJIA                      .04  percent

NASDAQ             .58  percent

S&P500                 .22  percent

The S&P500, posting its fourth straight increase, moved  .41 percent higher; the NASDAQ, up for the third successive day, improved .74 percent; and the DJIA added .07 percent – more than double its loss of the day before. This yields a pattern of +3, +2, and +1  for these three indicators.

This unusual result has just 10 previous forerunners, with three of these since January 2000. The startling upshot of this history is that all ten of these closes happened during major upswings. Further, they came during the early phase of each expansion.

Looking at the record for the day following, prices moved higher eight times for the DJIA and the S&P500, declining twice. The NASDAQ fell three times, increasing on the other seven closes.

The count for the three since-2000 previous closes yields an even stronger result: the S&P500 moved higher on all three days, while the DJIA and the NASDAQ fell once but moved higher twice.    

DJIA                     .07  percent

NASDAQ             .74  percent

S&P500                 .41  percent

Prices remained just about unchanged, with the DJIA losing -.03 percent while the NASDAQ andS&P500 adding about the same. Today’s pattern of  plus 3 for the S&P500, plus 2 for the NASDAQ and -1 for the DJIA happened just 16 times since 1950; six date from January 2000.

The day following, in the past, favored the plus side 12:4 for the DJIA and the NASDAQ; that ratio falls to 10:6 for the S&P500.

The recent market continues to favor minor daily moves. The diagram below traces the S&P500 since the beginning of 2010; the dots represent closes in the range of minus .1 and plus .1 percent. Do these instances reveal a timing relationship with future declines, increases or stability? 

A first glance, or conjecture, consistent with the timing of these events, focuses on the clusters when prices are rising; nevertheless at this stage and without further analysis, a firm causality remains in doubt.

DJIA                    -.03  percent

NASDAQ            .06  percent

S&P500                .03  percent

All three indices moved forward with strength, with the DJIA and the NASDAQ scoring the highest advance since December 2. This is the second plus day in a row for the DJIA and the S&P500; since the NASDAQ was a loser on Friday, it is a first plus for the NASDAQ.

Today’s pattern is the 22^nd repeat since January 2000. In the past, the following day showed mixed results. The NASDAQ posted 12 gains and 9 losses, and the S&P500 moved higher on 11 days; the DJIA, however, had more losses than gains, advancing only 8 days and falling on 13.

DJIA                    .92  percent

NASDAQ          1.04  percent

S&P500                .58  percent

Today’s pattern –the NASDAQ down for the third successive day while the JIA and the S&P500 moved higher after two losses- has occurred only 16 other times since the start of 2000. With half posted of these during the 2000/2003 downturn and six others in the following recovery, this combination fails to provide insights for the direction of the current market.

Moreover, analyzing just the total frequencies of DJIA and S&P500 rising while the NASDAQ declines –and there are 90 such closes since 2000- also yields no clues of future price developments. The data allow only the conclusion that these rare events have been, in the past, distributed almost equally between bull and bear markets.

DJIA                    .41  percent

NASDAQ          - .55  percent

S&P500                .24  percent

Prices continued to decline for the second day in a row. Yet at the close, losses were smaller than the day before. The NASDAQ fell  -.77 percent and the S&P500 declined  -.13 percent; the DJIA, however, was just  .03 percent short of the positive side.

The pattern of recent changes yields a -2/+2 profile, making today’s change the 36^th repeat since the beginning of 2000. The following day though does not leave much room for recovery on the following session. In the past, these indices had almost twice as many drops as increases in the next   session.

Yesterday’s blog featured a quantitative forecast discussing the S&P500’s expected  close on December 31, 2011. Today we treat the NASDAQ. The diagram   reveals the relationship between the price changes of January and the  year-over-year changes on the last trading day of the same year.

Of course, this is far from a reliable predictor; however, note the frequency of positive January and positive year changes. Most of the negative January changes also coincide with the annual declines in the NASDAQ.

Indeed, only ten of the January changes yield an opposite sign for the following 12-month period.   In the other 30 some years, the January gain or loss parallels the year over year change in the December-to-December price variation.

DJIA                   - .02  percent

NASDAQ          - .77  percent

S&P500              – .13  percent

The NASDAQ fell  -1.46 percent and the S&P500 lost  1.01 percent, enduring their worst performance since November 23. However, the DJIA, in sharp contrast backed off just -.11 percent.

Today’s pattern for all three indices stands at    -1/+2/-1 or one down day, after two advances which followed one negative day. In the past, the market posted 46 days with this pattern, with 30 since January 2000.

The record promises a favorable view for tomorrow, with 18 advances outnumbering 12 declines.

January sees many forecasts for the coming year; we will be doing some today and more in the next several dates. The technique of the diagram below uses the change between the first and last trading day of January to project the market for the rest of the year.

With the dots identifying the January change and the solid line the annual percent change, it is difficult to infer a meaningful and a numerical relationship. Nevertheless, the regression equation explained  30 percent of the years’ variation.

DJIA                   - .11  percent

NASDAQ           -1.46  percent

S&P500               -1.01  percent