USMarketView

April 14, 2011                      Market Remains Stable

Prices did not change very much today, as the DJIA rose .12 percent, the S&P500 closed up .01  percent,

while the NASDAQ lost  .05 percent.  In fact,  these three indices have not advanced nor declined very

much since the first of the month. On balance, the S&P500 and the NASDAQ have lost -.008 percent,

and the DJIA is down -.003 percent. Moreover, this is a rare profile: fewer than five closes this small

are on record since the beginning of 2000.

Given this history, unfortunately, not much can be said about where prices will close tomorrow.

Indeed, the data of the past reveal an equal number of declines and gains on the following day.

DJIA                 .12 percent

NASDAQ        -.05 percent

S&P 500           .01percent

April 13, 2011                      Small Gains End Losing Streak

                                  NASDAQ, up  .61 percent, scored the  largest gain today, leaving the DJIA and the S&P500 far behind. Their increases were limited to .06 percent and .02 percent. While small, these advances came after four consecutive losing days.

This pattern occurred on only 20 days overall, with the last 10 crossing the tape since the beginning of 2000. Yet the outlook for tomorrow, Thursday, based on this record does not seem favorable, with 6 declines and only 4 increases on the following day.

Shifting the focus from today’s pattern to the size of today’s changes, as shown in the diagram, we observe the NASDAQ’s increase of .61 percent, overwhelms the gains of both the DJIA and S&P500. In fact, the NASDAQ change overpowers the S&P500 advance by a factor of 30. Similarly, the DJIA increase is only one-tenth the size of the NASDAQ’s.

We note that only four previous days share this ratio of gains: three in 1999 and one in 2001. The orange circles on the diagram identifying these occasions show that three of these combinations precede the 2000 market peak, while one happened during the following decline.

However, when considering the distribution over time of gains the size of today’s DJIA and S&P500 changes, they are evenly distributed and appear as often in declining as in appreciating markets.

DJIA                 .06 percent

NASDAQ         .61 percent

S&P 500           .02 percent

April 12, 2011                      Fourth Straight Decline

A rare result indeed – that the DJIA^*, the NASDAQ, and the S&P500 fell four days in a row. The record shows only 18 other days, since the end of 1999, with this pattern, and the last occasion occurred eight months ago, in August 2010.

The diagram identifies these days with solid circle.  Whereas four of these happened at the 2003 bottom, and one hit the low point exactly in 2007, these matches do not insure that today’s combination qualifies as a projector of higher prices ahead.

However, it does not signal a fall in prices; certainly not a single major decline happened after four days of straight declines.

Therefore, while there is no guarantee that prices will not fall in the near future, such an outcome would not be a  result of, nor would have been signaled by, today’s  four-in-a-row negative close.

DJIA                - .95 percent

NASDAQ        - 96 percent

S&P 500          - .78 percent

^*            Refer to yesterday’s post to see how we treated that  -.01 percent change of the DJIA.

April 11, 2011                      Third Decline in a Row

              While the DJIA actually gained  .01 percent today, this analysis will consider

            its close as negative.  People might consider such an assumption as violating truth, yet it makes the analysis symmetrical, and  minus .01 percent is not very different than plus .01 percent. The NASDAQ lost -.32 percent and the S&P500 declined  -.28 percent. A total of 283 previous NASDAQ closes, since January 2000, fit in the range from zero to -.32 percent; and 350 S&P days are in the zero to -.28 percent boundary. Considering the 2,846 trading days, these events are not insignificant. They represent almost 10 percent of all NASDAQ transactions and are near 13 percent of all S&P500 changes.

            Further, these small change days occur more often in bull markets than when  prices are falling.  Consider the 741 sessions between 2000 and 2003 when the market declined; more than 10 percent of the S&P500 changes were in the range between zero and -.28 percent. During the following decline, 2007-2009,  6 percent of the closes occurred in this interval.

            In stark contrast, the frequency of small changes came to 15 percent during the 2003 to 2007 bull market. Importantly, they represent 14 percent of all S&P500 changes since then.

            These combinations allow projecting further growth ahead for security prices.

DJIA                 .01 percent

NASDAQ      - .32 percent

S&P500         - .28 percent

April 8, 2011                              Down Again

The week ended with prices down a fraction from Monday’s close.  Further,  today’s decline after yesterday’s losses results in a pattern of two minus days in succession. The last minus-two-in-a-row occurred on March 15; that was 18 trading days ago. And on the following day, the market dropped again, making it a minus-three-in-a-row series.

All told, since 1950, there have been 396 of these  minus-two-in-a-row closes; and 153 came since the beginning of 2000.  On analyzing these closes over the last two downturns and for the last and current upturn, we find no relationship between these incidents and the cycle of  prices. For example, eight of these occurred, so far, in the current upturn that started in March 2009; and the count during the previous 2007/2009 decline also came to eight.

As for the projection for the following day, Monday April 11, the record reveals a meaningful difference of positive over negative changes. There have been 140 days of a further, three day, decline;  but the number of gains on the following day comes to 256.

Yet despite this almost 2:1 advantage for a positive next day, remember that the last repeat, on March 16, resulted in a third decline in a row.

DJIA               - .24 percent

NASDAQ       – .56 percent

S&P500          - .40 percent

April 7, 2011                      Prices Continue Rotating  Between  Ups and Downs

The three indices fell today, offsetting yesterday’s gains; it was the fourth change of direction in as many days. Such daily reversals are far from rare, occurring on 443 days over the last 11 years. That amounts to 16 percent of all trading days, or once every six days.

Today’s pattern, however, differs slightly from these up-then-down sequences in that the NASDAQ has a -1/+2 history, while the DJIA and the S&P500 share a  -1/+1 record. Only 13 previous sessions since 1999 share this combination.

As for the following day, the past shows an almost equal number of advances and declines. Therefore, as with yesterday ‘s  projection, the record fails to provide a basis for inferring the closing positions of tomorrow’s market.

DJIA               - .54 percent

NASDAQ       - .13 percent

S&P500          - .15 percent

April 6, 2011    Gains
Continue – NASDAQ  Closes at 99.99
Percent of 2007 High

With the NASDAQ moving
higher for the second day in a row, while the DJIA and the S&P500 also increased
after Tuesday’s losses, the market repeated a pattern seen 33 times since 1999.
However today’s gains,  .67 percent for
the DJIA,  .31 percent for the NASDAQ,
and .22 percent for the S&P500, are far below the average of these previous
changes. The mean gain for the NASDAQ is 1.87 percent, for the DJIA 1.37
percent and 1.49 percent for the S&P500.

The outlook for tomorrow
based on past performances of this pattern yield an almost even balance between
a further gain and a decline.

Today, the NASDAQ almost
returned to its 2007 high of 2802.91. It achieved a similar level earlier this
year and indeed surpassed that record for six days between February 11 and February
18, 2011. Will it continue to move higher or will it fall again?

DJIA                .67
percent

NASDAQ        .31
percent

S&P500          .22 percent

April 5, 2011                        Prices Hold Steady

Prices repeated yesterday’s record of small changes but in reverse. The NASDAQ picked up  .08 percent, whereas the DJIA lost  -.06 percent and the S&P500 declined  -.03 percent.  On Monday, the NASDAQ declined while the DJIA and the S&P500 moved higher. Moreover, the actual daily changes were negligible. 

It seems logical to attribute such small daily variations to uncertainty. Moreover, that the size indicates a switch in the market’s direction. We have tested this proposition, but found no conclusive evidence in the past ten years that supports this assumption.

As for Wednesday’s  possible changes, and considering the results of past, identical patterns, the odds favor a decline for the S&P500 by a factor of 2:1, and even chance of advance and retreat for the NASDAQ and a 7:5 probability of an increase in the DJIA.

DJIA               -.06 percent

NASDAQ        .08 percent

S&P500          -.03 percent

April 4, 2011                 Small Changes Start Week      

The NASDAQ’s decline of  just -.03 percent stopped its positive streak at four; the S&P500 gained .04 percent after Friday’s advance. Yet it seems that changes as small as these, and not much different from zero, provide little insight into market tendencies.

Today’s pattern of two positive days for the DJIA and the S&P500, and one negative day for the NASDAQ is the 30^th repeat since the end of 1999. The history of the following day shows more declines than advances. The DJIA fell on 22 days, gaining on only 7 sessions. The NASDAQ and the S&P500 also had more  losses, 16:13  and 17:12.

DJIA                .19 percent

NASDAQ       -.03 percent

S&P500           .04 percent