May 16, 2011 Prices Fall Again
Uncertainty about the debt ceiling renewal, and that the government might tap money that belongs to its employees retirement fund, cannot but damage confidence. Regardless of the right or wrong of running a country perpetually in the red, the threat of a stalemate between the House of Representatives and the President is sure to reduce confidence and hold back increases in equity values.
Closing down for the second day in a row, the NASDAQ was the leader, losing -1.63 percent – whereas the S&P500 fell -.62 percent and the DJIA gave back just -.38 percent. The bad news is that the market has regressed some 17 trading days, with prices returning to their mid-April level.
There have been 28 closes in this century with the same pattern of -2/+1/-1. These seem to be distributed equally over the up and down phases of the last two price cycles, with just about the same frequency in the up segment as the down period. But, while their incidence is unrelated to price cycles, note that six have taken place in the short period since this recovery started in March 2009. In contrast, there were only ten during the more than 700 days of the 2003/2007 expansion.
Fridays projection of todays price changes clearly is inaccurate; based on past repeats of that days pattern, it expected gains rather than losses. While the call for tomorrow is also positive, but with substantially smaller odds of 4:3.
DJIA - .38 percent
NASDAQ -1.63 percent
S&P500 - .62 percent