March 4, 2011 Correction or Alteration?
It should not be surprising for prices to move in the opposite direction the day following a large change in prices. Typically, the word correction designates this relationship. In that sense, todays declines ranging from -.50 to -.74 percent seem appropriate, as buyers and sellers interact to set a new equilibrium.
Yet the recent pattern of daily price changes the repetition of down after two gains- repeated twice in succession happened only six times in our data base going back to 1950. Moreover, all six of these recurrences happened since 2004.
The graph identifies these with a red mark. Significantly, the last four came during the long price decline of 2007 to 2009. Granted that prices were in a long recovery when the other two instances happened, nevertheless, investors might be duty bound to wonder if this signals a change in market direction.
DJIA -.72 percent
NASDAQ -.50 percent
S&P500 -.74 percent
