USMarketView

March 31, 2011                   Market Leaves Repeats Behind

Prices declined for  -.25 percent the DJIA and  -.18 percent for the S&P500; the NASDAQ moved  .15 percent higher.  Since the last close for this combination occurred last November, today ends the recent sequence of pattern replications.

Combining today’s and yesterday’s combination of changes yields a history of 50 repeats before 2000 and 10 since the end of 1999. Most of these later closes, 7 out of 10, came while prices were in the decline of 2000/2003. Thus, today’s pattern implies an end to the current recovery.

As for tomorrow, the last day of the first quarter, the past repeats are distributed almost equally between six increases and four declines.

DJIA               -.25 percent

NASDAQ        .15 percent

S&P500          -.18 percent

March 30, 2011                   Repeat  Repeats Again

Once more, as the day before, the pattern of changes –  +2/-1/+3 –  replicates the array of March 24, Thursday of last week. Accordingly, the analysis and projection of the earlier session hold for this close.

Then, the history of this pattern showed an almost equal number of increases and decreases for the following day. Further, it also revealed that the magnitudes of the daily changes –less than a full percentage point- dominated the expansions of 2003/2007 and the present growth since March 2009.  This outlook then remains unchanged for today.

However, the recovery rate for each of these three indices has changed since they reached their last highs on February 18, 2001.  The diagram shows the time path of these ratios, as well as a horizontal line at those earlier values.

Whereas the NASDAQ still sports the best performance, it has fallen two percentage points from its previous level during this interval of 28 trading days. The DJIA, however, while declining also, fell by only .29 percent points. That is just about one tenth of the NASDAQ loss. The S&P500’s proportion similarly reduced its disadvantage to the leader, falling by just .94 percentage points.

Thus, not every aspect of the market remains unchanged, and of course, these differentials lead to profit [and loss] opportunities.

DJIA                .58 percent

NASDAQ        .72 percent

S&P500           .67 percent

March 29, 2011                   Repeat  Repeats

Yesterday had the same, unusual pattern as March 21 – Tuesday of last week.  Today continues that duplication, with an increase following yesterday’s decline.  The market’s involvement with such echoes seems atypical and out of character.  Yet periods of rising prices, as well as periods of falling prices, are far from continuous.

Today’s diagram plots the daily closing prices of the S&P500 since January 2010. Each of the blue triangles marks, not a swift change in direction, but rather a period of minor up and down fluctuations. Following that phase of marking time, prices return to their trend of increase or decrease.

Notice, also, that the consequence of a startling or surprising happening is quite different, as shown by the sharp price drop following the nuclear disaster in Japan. The red line marks this event.

The most recent high of February 18, shown by the black vertical line, initiated the recent tremors; it illustrates the familiar flutter of small, repetitive up and   downs that interrupted previous major changes in the level of prices.

DJIA                .65 percent

NASDAQ        .96 percent

S&P500           .71 percent

March 28, 2011                  Prices Fall – Repeating Last Tuesday’s Pattern

Today’s decline, a replay of March 22, has prices declining only a fraction, and follows three previous gains.  That projection for March 23, the following day, called for a decline. That proofed wrong. Indeed prices moved higher not just the next day but also for three straight sessions. The result was that last Friday’s pattern was +3/-1.

You may want to reference the March 22 blog for a description of the history and the circumstances of this +3/-1 series. Given the record, we must project that same future, of an increase for tomorrow, though we know the last repeat was off.

Yet the market today stands at a new, never before experienced pattern of changes over the past eight trading days. Tying these together into one continuous string results in a   -1/+3/-1/+3   configuration. While that yields an alternate pattern of analysis, this alignment has never occurred before!

Thus, in a sense, today the market yields a new data point, a new record. That may seem of little practical significance – however, every time a situation without a precedent occurs, it seems wisdom dictates caution.

DJIA                -.17 percent

NASDAQ        -.45 percent

S&P500           -.27 percent

March 25, 2011                 Third Successive Advance

Once again prices moved higher for the third day in a row – repeating this sequence just four market days after its last appearance. Furthermore, this is the 62^nd repeat since the beginning of 2000.

Only a brief look at the record reveals their frequency is associated with rising markets. Today’s three-in-a-row becomes the 14^th since the current recovery began in March 2009.  So far, 2.8 percent of all closes since then have been three-in-a-row.  In addition, the 34 that occurred between 2003 and 2007, during the previous bull market, amount to 2.95 percent of all sessions in that period.

In contrast, only  1.41 percent and 1.01 percent of the closes during the previous two bear markets achieved this mark.

In consequence, the inference that the present recovery still has not reached its end, gains support from today’s repetition of the three indices’ three-in-row.

As for the following day -Monday- prices in the past moved higher 32 times and fell on 29 days. However, the small margin between past gains and losses allows not much confidence in projecting a fourth positive close.

DJIA                 .41 percent

NASDAQ         .24 percent

S&P500            .32 percent

March 24, 2011                 Sturdy Gains

Prices rose near double yesterday’s rates and like yesterday, the projections faced in the wrong direction. As for forecasting Friday’s action based on the pattern of changes, the record shows about the same number of advances as declines.

However, consider the average of all daily changes with today’s pattern of two gains following one loss, that is  +2/-1.  The diagram plots these 87 experiences for the S&P500 since the beginning of 2010.  Contrary to what might be expected as rational, these changes are greater during eras of falling prices than when the market is rising.

Therefore, during the 2000/2003 decline the average daily S&P500 change was 1.71 percent, but in the following 2003/2007 expansion, that number fell to .68 percent.

Furthermore, this identical configuration exists for the NASDAQ –with 2.91 percent compared to .97 percent in these two periods- and the DJIA’s 1.63 percent average when prices are falling larger than the .63 percent average change in the following expansion.

While some explanation needs to reveal the ‘why’ of this seeming contradictory price behavior, nevertheless, it can be used, together with today’s changes nearer the expanding than the contracting averages, to infer that prices are increasing.

DJIA                 .70 percent

NASDAQ        1.41 percent

S&P500            .93 percent

March 23, 2011                      Tenth Direction Change This Month

Prices moved higher, mostly offsetting yesterday’s losses, as the seesaws of up and downs continues. Yet today’s pattern of   +1/-1/+3 is only the 12^th repeat in the past 12 years. Furthermore, yesterday’s projection, using the record of previous ‘next day’ changes, failed to anticipate these gains.

Focusing on the recovery rates of these three indices, see the diagram below, we focus on the NASDAQ’s acceleration that started at the end of last August. Since then, it has increased from 75.2 percent of its 2007 high, to 101 percent on February 18. Since then the NASDAQ has backtracked to today’s 96.2 percent.

At the same time, the DJIA and the S&P500 have narrowed their falling-behind the NASDAQ recapture rate. Today the DJIA, at 85.3 percent of its 2007 high, lags the NASDAQ by  10.9 percentage points. That is down from the  -13.5 points when the NASDAQ reached its top on February 18.

The S&P500 recovery parallels the DJIA. It lagged the NASDAQ by  17.3 percentage points on February 18; today the difference is down to  13.3 percentage points.

However, over the longer period, since all three averages spurted higher last fall, the NASDAQ has improved substantially more than the other two. Back then, the NASDAQ’s recovery advantage over DJIA has grown from  4.5 percent to 10.9 percent today.  The same result applies to the S&P500’s recovery rate: it increased from -8.2 percent last year to  -13.3 percent today.

Without further discussion of the inherent differences in price changes and profit potentials, note however, that during the decline from 2007 to 2009, the percentage declines of all three indices were identical.

DJIA                 .56 percent

NASDAQ         .54 percent

S&P500            .29 percent

March 22, 2011                      Modest Declines

The DJIA’s loss of  -.15 percent ranks as the 227^th smallest since 2000. Similarly, the NASDAQ, off by  -.31 percent, had only 271 lesser days, whereas the  -.36 percent S&P500 showing comes in as number 423. 

Today’s retreat by the three indices is the first decline after three increases in a row. While 61 previous days have the identical pattern, only 21 occurred since January 2000. The diagram shows these last 21 as dominant when the trend of prices is rising.

It also reveals that declines are far more frequent than increases on the following day. Twelve of the thirteen next-days during the 2003/2007 recovery came in negative, while the present era of rising prices two increases offsetting two declines. Overall, only five positives followed this -1/+3 pattern since 2000, whereas  16 declined.

The projection published yesterday anticipated correctly today’s losses; however, since it was based on just two previous repeats, it has little, if any, statistical significance.

Note: Some of Japan’s stock indices advancing near 4 percent seem to signal relief that the situation seems to remain stable.  

DJIA                 -.15 percent

NASDAQ         -.31 percent

S&P500            -.36 percent

March 21, 2011                      Strongest Advance Since March 3

Today’s results are unusual as the three indices

    Regained their pre-Fukushima closes of Friday, March 11

    Posted their third straight increase,

    Scored the largest increases ever when advancing three days in a row, and

    Had just 167 days with increases larger than today.

Today’s pattern of three successive gains after three losses in a row, occurred only eight times before, with just two others since January 2000. On the following day, in the past, the S&P500 fell twice, while the DJIA and the NASDAQ went up once and fell once.

Moreover, the record fails to support a rosy outlook – many, if not most, of these triple day gains by all three indices came while the market was enduring the two sharp drops between 2000/2003 and 2007/2009.

Yesterday’s projection for today, favored a decline in prices. It was not realized, even though history records losses outnumbering gains for that pattern.

DJIA                 1.50 percent

NASDAQ         1.83 percent

S&P500            1.50 percent

March 18, 2011                      Market Rebounds Again

Prices continued higher for the second day, generating a +2/-3 pattern as the week ended.  Only 20 closes exist with that configuration, seven of which occurred since January 2010. In the past, the following day was mainly negative, with the DJIA falling five times and increasing twice. The other two indices were somewhat stronger, with only four declines and three increases.

The market, it seems, believes that the catastrophic news from Japan will have only a small, future impact. We base this conclusion on the difference between today’s closing prices and last Friday’s. A week ago, the world little knew of the terrible news to come. However, as conditions worsened, on Monday, Tuesday and Wednesday, security prices dropped.

Now prices, after advances yesterday and today, have recovered all but less than two percent of their close a week ago. The DJIA, for example, is worth only 1.54 percent less than at this time last week. The NASDAQ at  -1.81 percent, and the S&P500’s  -1.92 percent steeper losses over the week seem slight in relation to the magnitude of the possible damages and future costs.

If this judgment of price is correct, then despite the huge personal and business costs in Japan, the rest of the world will feel only a slight impact. On the other hand, if this conclusion is too optimistic, then expect prices to fall once the actual impact spreads through the private and business world in the future.  

DJIA                 .71 percent

NASDAQ         .29 percent

S&P500            .43 percent