USMarketView

Substantial gains mark the end of the second week of 2011. The NASDAQ appreciated 3.8 percent since December 31; the S&P500 added 2.9 percent and the DJIA rose 1.8 percent in the past 10 days.  These increases happened despite several up-then-down days and some modest changes. Thus the     move to higher stock prices, begun at the end of August, continues.

The NASDAQ rose nearly  30 percent since the August 31, 2010 low, 94 trading days ago. The index exceeded that pace just 20 times since the March 2009 low. Going further back, only 26 such runs characterized the 2003/2007 expansion.

The other two indices, while also moving substantially higher, failed to match the NASDAQ’s stride. The S&P500 added 19 percent and the DJIA increased 18 percent during this expansion.

It seems that this good news failed to gain attention because the market persisted in moving up and down as well as changing only slightly on many days. The S&P500, for example, posted 5 gains and 5 advances during the last two weeks, whereas in 2010, that ratio was 143 to 108.

DJIA                  - .20  percent

NASDAQ          - .07  percent

S&P500               -.17  percent

Following yesterday’s strong advance, prices fell, but not very much. Thus, the market returned to its earlier, since December, minor daily change routine. The NASDAQ lost -.07 percent, the DJIA declined -.17 percent while the DJIA fell -.20 percent.

Today’s pattern of  -1/+3  for the NASDAQ and -1/+2 for the other two averages has happened just ten times since 1950 with three in this century. However, extrapolating this history to project tomorrow’s changes, is a stretch, since the last two previous changes of all three indices range from -2.2 percent to  +1.71 percent.

Consequently, it would take a leap of faith to believe that today’s results come from the same universe s the past three years.  

With no projection for Friday’s market, note that the forecast for today, was based on a history of only seven previous closes. Hence while correct and on the money, that estimate as well could not boast much reliability.

DJIA                  - .20  percent

NASDAQ          - .07  percent

S&P500               -.17  percent

January 12, 2011           Large Gain – Second Strongest in 2011

With the S&P500’s plus .90 percent leading the way, prices scored their best advance in eight trading days.  The NASDAQ gained .75 percent and the DJIA moved up .72 percent. 

Today’s performance by the DJIA and the S&P500, moreover beat all other gains since December 2, some 28 trading days ago. The NASDAQ, because of its recent stronger daily movements, posted its second largest addition in 18 days.

By now, the NASDAQ has recovered 97.6 percent of its 2007 peak, adding some 17.5 percentage points since the beginning of September. The S&P500 took second place, recovering 12.0 percentage points while the DJIA picked up only 9.5 percentage points over the past four months. Furthermore, these two indices at this time have regained only 82 percent of their October 2007 highs.

Today’s pattern – three advances in a row for the NASDAQ and two successive gains for the DJIA and the S&P500- has occurred 43 times since 1950 with 7 counts thereafter.

Looking forward to Thursday, the odds, based on this pattern’s  history, favor the  negative side, with the NASDAQ showing just two gains and five losses. However, yesterday’s projection grounded on the same record, also had slightly more declines than advances, but obviously underestimated the market’s strength.

DJIA                   .72  percent

NASDAQ           .75  percent

S&P500               .90  percent

Every day the market returns to ‘the same old, same old’ price variation. All three indices moved up with the DJIA’s uptick of  .37 percent leading the way. The NASDAQ followed with a  .33 percent move and the DJIA came in last, posting  .30 percent.

Only one close so far this month fell outside these narrow, plus or minus, boundaries. While last year had 18 such days, this frequency fell to 7 in 2009 and one in 2008.  That changes of this magnitude signal higher prices ahead would be a useful explanation – but no evidence substantiates that relationship.

Yesterday’s projection of higher prices for today, based on the history of patterns, came in accurate. The news for tomorrow is not as good, with the past frequency count of 18 negative days and 13 positive days failing to yield optimism for expectations of higher prices on Wednesday.

DJIA                   .30  percent

NASDAQ           .33  percent

S&P500               .37  percent

The market remains on the same track of minimal price deviation from the close of the previous session. The DJIA and the S&P500 completed their third straight day in negative territory but the NASDAQ moved up a bit. 

This pattern of three successive declines and an increase in the NASDAQ has repeated nine other times since 2010 and on 42 days in the 1950-1999 period.

The DJIA and the S&P500 closed higher on 7 of the following days while the NASDAQ increased on 6 occasions, falling on three.

Friday’s post describes the existing relationship between minor daily price variations and the trend of prices moving higher.  Will this historical  relationship continue, thus promising rising prices while daily trading results in minor price variations?

DJIA                 - .32  percent

NASDAQ           .17  percent

S&P500              -.14  percent

January 7, 2011           Small Changes, Like Today’s, Dominate Up Markets

Another session, the fourth this week, closed with only modest changes from the day before. Minimum daily fluctuations have become the rule, rather than the exception, since November. This trend should be welcomed: such closes go together with rising prices.

The table below summarizes the gains and losses of closes in the same range as today’s, for the periods since March 2003, the beginning of the two most recent price cycles.

Comparing the total number of gains and losses by each era shows that they occur more often in good times. More important, this domination carries over to their relative frequency.

Whereas these days in losing markets happen on less than .6 percent of all days, they reached almost 4 percent in the previous, 2007 peak. Currently at 2.41 percent, these recent small change days associated with significant price advances, show conformity with this history.

DJIA                 - .19  percent

NASDAQ         – .25  percent

S&P500              -.18  percent

With the NASDAQ up .28 percent today, it has recovered 96.4 percent of its 2007 high. The gap is widening between these indices as the DJIA, off -.24 percent, and the S&P500 closing down  -.21 percent, moved to 82.6 percent and 81.4 percent of their previous tops.

Consequently, the DJIA now trails the NASDAQ recapture rate by 14 percentage points. However, at the beginning of last November, the DJIA gap was only 10 percentage points. Similarly, the S&P500’s recovery, now at 81 percent stands 15 percentage points behind the NASDAQ. Last November it was only 13 percentage points behind.

Today’s pattern – two gains in a row for the NASDAQ while the other two averages posted a single day decline – while rare has repeated 35 times since the beginning of 2000. Yesterday’s count was 4 and the day before was 7, while the pattern on Monday was its 200^thduplication. 

We note that unfamiliar configurations never have the same reliability as often-repeated patterns.

The estimate for today, based on yesterday’s pattern, was negative for each of these three indices, whereas the call for Friday is positive by a factor of two to one.

DJIA                 - .24  percent

NASDAQ           .28  percent

S&P500              -.21  percent

The DJIA, closing higher for the fourth session in a row while the NASDAQ and the S&P500 maintain their
alternate up and down days, continues to generate patterns seldom seen before. As a result, the number  of similar,  previous data points becomes smaller.

For example, today’s combination has occurred just 12 other times, with four of these happening
since the beginning of 2000. This is down from yesterday’s frequency of 26 overall and 7 in the past decade.

Focusing attention on the four closes experienced earlier, reveals they share a common positioning: they
appear near a local top that leads to a substantial decline in prices. The diagram identifies these four instances, plus today’s close, with a circle.

While fundamental changes in business, economic and financial circumstances could be inducing this
pattern, the basis of our projections relies on the purely technical repeats of daily patterns and their association with market and price turnarounds.

As for the day following, yesterday’s pattern suggested that prices would rise today. Continuing with this scheme, note that on all previous repeats of today’s configuration, prices fell on the next day.

DJIA                                    .27  percent

NASDAQ                            .78  percent

S&P500                              .50  percent

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The market reverted to the minor daily changes of last month, as the DJIA added  .18 percent and posted its third straight gain.  The S&P500 lost  -.13 percent and the NASDAQ fell  -.38 percent. Both these averages now have three declines and just one positive close in the last four days.

Further, as at the end of last year, today’s closing pattern has only a few forerunners. The DJIA’s  +3, combined with the  -1  of the NASDAQ and the S&P500, have occurred just 7 times since 2000; 19 others came in the 1950/1999 period.  

Yet the last incident was less than a month ago, on December 23, just before the holidays began.

Five others took place during the bear market of 2000/2003, while another hit during the early stages of the October 2007 decline.

Of course this association with the market’s ups and downs could be coincidental; on the other hand it might also demand a cautious outlook for the future.

As for tomorrow, the record reveals gains outnumbering declines on the next day. These range from six advances and one decrease for the DJIA, five gains and 2 declines for the S&P500, to four positive and three negative closes for the NASDAQ.

DJIA                    .18  percent

NASDAQ          -.38  percent

S&P500              -.13  percent

Prices jumped at the opening bell and stayed near that level through the close. They achieved their largest advance in 21 trading days and seemingly moved beyond the small fractions posted almost every session in December.

These results, occurring on the first trading day of the new year, will generate significant attention. Indeed, these three averages together achieved positive closes on this opening day only five times in the past 11 years.

Pointedly, prices scampered higher in four of those five years: they fell in 2002 but in 2003, 2006, 2009, and last year, they closed higher than the year before.

Some other statistics may be of interest. All three indices fell three times at the year’s start of trading. And by the end of those years, prices of these indices closed lower than on December 31 of the year before.

DJIA                                            .81  percent

NASDAQ                                 1.46  percent

S&P500                                    1.13  percent