USMarketView

May 31, 2011              Prices Up Again

Today’s session moved prices higher for the fourth successive day – only the 23^rd such run since 2000, and the 83^rd between 1950 and now. The diagram locates these previous 22 occasions with a red dot.

Clearly, this pattern favors periods of rising prices, since only four happened during the two bear markets. The other 19 clearly took place while prices were on the rise between 2003/2007, and as well since the current bottom in March 2009.

Further, note that these bear market runs stop at four gains in a row, whereas those posted during rising markets have a 50/50 chance of moving up to five gains in a row.

While this pattern provides insight into tomorrow’s market, the more important focus should be on the more distant future. Since the recent arrays of ongoing closing patterns are concentrated during periods of rising prices, the inference that prices will continue to move higher prices in the future seems justified.

DJIA              1.03 percent

NASDAQ      1.37 percent

S&P500          1.06 percent

May 27, 2011              Third Advance Follows Three Declines

The last six days generated a quite common pattern seen 65 times over the last eleven years, namely three straight gains on the heels of three contiguous losses. Today’s diagram identifies these with a red dot.  Just a casual glance reveals that these occur more frequently when prices are moving up than when they decline.

Further, with the good to bad times ratio being near four to one, it seems that we can consider this sequence as a structural feature of the market.  Yet this pairing reveals also a tendency to signal a major change in the future direction of prices.

Notice that many of the eight incidents in the 2000/2003 period occur near the lower turning point, just before prices start a new bull phase. Similarly, three of the five incidents in the 2007/2009 decline happen immediately before prices rebound.

However, these sequences also appear in bunches when prices are approaching a top, as revealed by the near twenty repeats just before the October 2007 highpoint. The frequent repeats of the +3/-3 pairings currently could signal a top in the near future. However, note that the pause of a few weeks ago, that was accompanied by a series of repeats, resulted in a pause rather than a turnaround.

DJIA               .31 percent

NASDAQ       .50 percent

S&P500          .41 percent

May 26, 2011              Up and Down Continues

While the S&P500 today reached  84.7 percent of its highest previous close in October 2007, this index, as well as the DJIA and the NASDAQ, has been as high several times this year. The NASDAQ has reached an even higher proportion of the 2007 high; it has crossed the 100 percent market already, but continues to hover around 99 percent.

Note that the S&P500 at today’s close is equal to its position in September 2006. It then took another 264 trading days before topping out in October 2007.

We know that stock prices in the past have routinely ended upturns at higher levels than their previous tops. Accordingly, taking that history as a basis, the long-term target for the S&P500 remains near 20 percent higher than today’s closing price. Though a similar outlook seems reasonable for the DJIA, the fact that the NASDAQ has reached and surpassed its 2007 value. That veils its future; whether it will move proportionately with these indices or will fluctuate at today’s level until the rest of the market catches up.

The market closed in line with yesterday’s projection, based on the record of its closing pattern. The forecast for tomorrow, however, shows even odds for a further increase or a decline.

DJIA               .07 percent

NASDAQ       .78 percent

S&P500           .40 percent

May 25, 2011              Market Repeats Last Wednesday’s Pattern

Exactly a week ago these three indices posted a configuration of an advance following a string of three straight losses. That pattern of  +1/-3 was duplicated today. This is an unusual repetition, because only ten other days before today closed with that pattern. Further, just five of these happened in the past ten years.

Another extraordinary feature of this pair -last Wednesday and this Wednesday- of dates is that today’s increases cluster around 50 percent of those posted a week ago.

These matches and similarities could be coincidental, of course; and it would be simplistic to expect the replication to continue tomorrow and the next days.  Nevertheless, consider this result. (Moreover, certainly USMarketView will schedule research of this and other repeats.)

Because price changes projected last Wednesday for the following day were realized, we expect advances tomorrow.

DJIA               .31 percent

NASDAQ       .55 percent

S&P500           .32 percent

May 24, 2011                    Third Drop in a Row

The market closed with substantially smaller losses than yesterday and the day before. The biggest loser, NASDAQ was off  -.46 percent; the DJIA declined -.20 percent while a mere -.08 percent hit the S&P500.

Today’s negative triple is only the second such appearance this year. While 2011 is far from over, note that 2010 recorded five runs of three straight declines.

Note that so far this year, the market scored five positive three-day runs. That is a much better performance than the five scored in all of 2010. But these strings of successive gains may not be very meaningful. While the first year of this recovery, 2009, enjoyed nine sequences of five straight gains, the same number occurred in 2007, the year when prices hit their high.

Yesterday’s projection for today, for higher prices, obviously did not materialize.  As for tomorrow, based on the history of days following three straight declines, chances are even for  (1) further losses or (2) higher prices.

DJIA              -.20 percent

NASDAQ      -.46 percent

S&P500         -.08 percent

May 23, 2011                    Another Decline

Prices continued to decline and the end of the day, the NASDAQ was off -1.58 percent, the S&P500 dropped  1.19 percent while the DJIA lost  -1.05 percent. Considering just the 90-some sessions of this year, today’s S&P500 change ranks as number 6 from the bottom. By comparison, before the market topped out in October 2007, today’s S&P500 decline of  -1.19 percent would have occupied the 31^st  smallest position.

Similarly, today’s NASDAQ and DJIA losses occupy number nine from the bottom so far this year. Their positions in the ten months before prices declined were number 13 and number 20.

Evaluating these positions, today’s rank compared to those of 2007, allows some insights into what may develop this year.  For example, the 94 days this year are roughly one-half of the 187 days in 2007 before prices fell in October. Yet today’s S&P500 decline would have occupied the 33^rd worst place in 2007, whereas its actual position is only number six.

That is, in 2007, there were 30 worse or larger declines than 1.19 percent before the market crashed. Today we have only five deeper losses.  

DJIA              -1.05 percent

NASDAQ      -1.58 percent

S&P500         -1.19 percent

May 20, 2011              The Current Price Line

With today’s closings down again, hitting levels seen earlier this year in February and then again, last month, more and more the fear is spreading that perhaps this bull market is phasing out. Yet the record shows the current recovery, begun in March 2009, so far is far shorter than the previous cycle.

The diagram plots the current S&P500 cycle/prices from its earlier highpoint in October 2007 to today, comparing it to the record of the 2000 through 2007 history. The effect is impressive: the previous sequence of rising prices lasted for 1,154 trading days.

That span is more than twice as long as the number of days since March 2009, when the market reached the lowest point of this round.

Yet the up-then-down sequence of daily prices remains, generating inferences that the trend will turn negative. Daily price reversals, however, are far from unusual. Today’s is the ninth direction change this month.

While considering the record of frequent changes in prices may not restore confidence, nevertheless, note that about 17 percent of all closes – or one out of six- is of opposite sign than the previous day.

DJIA              -.74 percent

NASDAQ      -.71 percent

S&P500         -.77 percent

May 19, 2011              A Positive Signal?

Contrary to yesterday’s negative outlook, one further day of history generates an opposite inference! The diagram identifies with a red circle, each of the 9 days, since 2000, when the market closed with three straight NASDAQ gains while the DJIA and the S&P500 both had just two positives in a row. The numbers next to the circles indicate the percentage gain by the S&P500.

Focusing on the magnitude of these changes, note that the three incidents occurring when prices were trending down are much larger than during the following uptrend. Changes on two of the days with falling prices exceeded one percent, while all rates are smaller than one percent when the market is in a bull phase.

While this relationship, based on just nine observations, is far from robust, it nevertheless could be allowing us a glimpse into the future.

The projection for tomorrow based on past results calls for declines, given that earlier ‘next days’ had twice as many losses as gains. Note that the positive forecast for today was accurate.

DJIA               .36 percent

NASDAQ       .30 percent

S&P500          .22 percent

May 18, 2011              A Negative Signal ?

The DJIA and the S&P500, up  .65 percent and .88 percent, joined the NASDAQ’s plus  1.14 percent, moving these averages higher for the first time in three days. By adding yesterday’s results, we then consider the characteristics of this two-day pattern, rather than today’s history in isolation.

The record reveals ten such combinations, five of which occurred since 2000. Two happened during the 2000/2003 decline while the last three came after prices peaked in October 2007.

Note that each of these days happened while the market was trending down; that future prices were becoming smaller with time. As a consequence, projections from today’s base results in a scenario of falling prices in the future.

Further, today’s gains are substantially smaller than in any of the five previous days. Not only are those earlier median changes almost twice the size of today’s gains, but the smallest increase, for each index, dwarf today’s results.

As for the following day, in the past, the NASDAQ posted four losses, increasing just once. The S&P500 shows three increases and two losses, while the DJIA’s reveals four gains and just one decline.

DJIA               .65 percent

NASDAQ      1.14 percent

S&P500           .88 percent

May 17, 2011              Small Changes of a Distinct Character  

Today’s close, with the NASDAQ rising  .03 percent and the other two indices falling, is the 15^th repetition of this pattern in the last 12 years. Red dots identify these days in the graph of S&P500 prices during this period. Working from left to right, or the past to the present, the first combination came just ten days before the market turned down in 2000. The next instant occurred 22 days prior to the start of the coming bull market.

Moving forward, another such day preceded the October 2007 turning point by 107 trading days. Now notice how today’s close perches at the highest price in recent months.

While the other 11 days with this pattern are not near major changes in direction, they nevertheless fit another design. They cluster.  The four in 2003 have separations of 4, then 40, 25 and 22 days.

Similarly, in the current expansion, two incidents are 23 and 48 days apart, while it took 186 sessions for the next, or today’s, happening.

Finally, the cluster in 2004 and the recent batch in 2010 share identical price brackets.

Obviously, the connections spelled out here could be nothing more than happenstance, yet given this caveat, attentiveness to the similarity of these sequences yields insight to the future.

DJIA              - .55 percent

NASDAQ         .03 percent

S&P500         -  .04 percent