May 13, 2011 See-Saw Continues
The market reversed direction again, for the fourth day in a row. At the end of the week, prices ended lower than last Friday. The pattern of closes now stands at -1/+1/-1/+3, a combination seen only 8 times before. All except two occurred since 2002.
Todays diagram of the S&P500 identifies these with a red diamond. (You may count only five because the two instances in 2005, within days of each other, are on top of each other.) They do not provide sufficient information, however, to associate this pattern with an upturn or a decline in the near future. Whereas the 2002 and the 2009 incidents occur as prices bottom before they move higher, another happened in 2007 just before the market experienced a major decline.
Given these cases of opposing outcomes, it is not possible to project the future trend of prices. Yet these past changes yield a strong forecast for price increases for Monday. On the following day, the S&P500 price always moved higher, while the DJIA and the NASDAQ gained ground on five the following six days.
DJIA - .79 percent
NASDAQ -1.21 percent
S&P500 - .81 percent
