USMarketView

June 30, 2011             Fourth Consecutive Advance

The rally went into its fourth straight day as the second quarter came to an end. While unusual, today is the 84^th repeat, and the 24^th recurrence since the end of 1999. Red dots on the diagram identify these days.

Their distribution is consistent with earlier signals indicating that recent daily patterns happen more often when the price trend is rising. Note that only four of these four-in-a-row days took place during bear phases, while 19 came while prices were heading up.

Yet the odds are high that the market will not continue with gains tomorrow. The numbers on the graph, next to the red dots, show the price change of the S&P500 on the day after the fourth straight advance. While these were negative for all the falling price intervals, this trend continues in good times, with declining days outnumbering the ones with increases.

Note that yesterday’s projection, calling for falling prices today, failed to materialize; and that we applied the same methodology for the coming session.  

DJIA                1.25  percent

NASDAQ        1.21  percent

S&P500           1.01  percent

At the end of the third straight positive day, the market returned to prices last seen at the beginning of the month, twenty trading days ago. Today’s pattern is the 227^th repeat since 1950, and the 68^th since the end of 1999.  Further, these three-gains-in-a-row days occur more frequently when prices are tending up.  They represented only 1.07 percent of all closes in the 2000/2003 decline – but their share rose to 2.95 percent in the following, 2003/2007 bull market. Similarly, this combination appeared  1.41 percent of the time during the 2007/2009 decline, and then rose to 2.67 percent to date, in the current recovery. 

The timing of these incidents provides a strong rationale for projecting a further increase in prices; clearly, this history is not consistent with expectations of lower prices.  Yet the probability of another increase tomorrow is not high, since declines occurred more frequently than gains on the day following these three-in-a-row advances. DJIA                .60  percent

NASDAQ        .41  percent

S&P500           .83  percent

June 28, 2011                Prices Increase more than One Percent

Today’s second advance in a row beat yesterday’s gains. The NASDAQ led the pack, increasing 1.53 percent. The S&P500 added 1.29 percent and the DJIA tacked on 1.21 percent. The frequency of this pattern -much greater than in most recent sessions- is 537 since 1950, with 207 since the end of 1999.

Rising prices saw most of these two-gains-in-a-row days, with 38 in the current upswing and 97 in the 2003/2007 bull market. The declining years had 28 and 41 incidents. Yet these numbers fail to show an association with rising- or falling- prices. While the largest percentage –more than eight percent-crossed the tape during the earlier rising price period, the following decline is in second place, with a 7.89 percent rate.

Turning to tomorrow’s market, the data of the past do not allow a positive outlook. Though the NASDAQ had a third advance 53 percent of the time, both the DJIA and the S&P500 posted losses with a frequency of about 60 percent.

We realized yesterday’s positive projection for today, given the overwhelming proportion of advances with that pattern in the past.

DJIA                1.21  percent

NASDAQ        1.53  percent

S&P500           1.29  percent

June 27, 2011                Advance Starts Week

Prices rebounded with the NASDAQ climbing  1.33 percent, as the DJIA and the S&P500 adding .92 percent. Yet the market continues with its up-then-down direction changes. The NASDAQ has reversed itself now for five sessions in a row, while the other two indices, however, just turned their direction after three consecutive declines.  

Yet it’s noteworthy to focus on the infrequency of recent trading patterns. Today’s combination is only the fourth repeat since 1999, making it less than useless for interpreting or projecting the market’s action.

Consider Friday’s estimate: based on just nine previous closes, with a record of just about an even number of gains and losses. Instead, today’s trading generated substantial gains.

Nevertheless, we provide the results of today’s pattern. While the DJIA and the S&P500 moved higher on all three days, the NASDAQ had only one increase and two declines.

DJIA                .91  percent

NASDAQ       1.33 percent

S&P500           .92  percent

June 24, 2011                Week’s Result: NASDAQ Up, DJIA and S&P Down 

At the end of this week’s diverse changes, the NASAQ moved ahead by 1.37 percent from last Friday’s close but the DJIA lost  -.58 percent and the S&P500 fell -.24 percent. Today’s trading ended with losses for each of the three indices: the NASDAQ fell  -1.26 percent, the S&P500 gave up -1.17 percent while the DJIA lost -.96 percent.  

It was the third consecutive decline for the DJIA and the S&P500 but only the first for the NASDAQ. This pattern, only the 10^th since 1999, nevertheless the last repeated occurred earlier this month, on June 3. Turning to the next day, the record shows five declines and four losses in the past.

The market’s daily variability combined with a standstill in price increases –indeed, declines from previous heights – is resulting in apprehensions that the top has been reached. But prices are far from the last, October 2007 high. Whereas it took 1,895 trading days for the S&P500 to mend its losses from the earlier top in 2000, the current recovery’s age is just 925 days.

The diagram reveals the parallel changes of these two recoveries.  Casual eyeballing these two paths exposes the many similarities. Indeed, the market’s current standstill seems to be happening at near the same time as in the past: halfway on its path to the earlier all-time high.

Perhaps this interpretation is wishful thinking; nevertheless, these are the facts of recent financial market volatility.

DJIA              -  .96  percent

NASDAQ       - 1.26 percent

S&P500          - 1.17  percent

June 23, 2011                NASDAQ Up, DJIA and S&P Down 

Daily price changes continue to produce uncommon patterns. Today, the NASDAQ moved  .66 percent higher, while the DJIA lost  -.49 percent and the S&P500 declined .28 percent. Only 87 such combinations exist overall, with a mere 20 in this century. We discussed the features and common traits of such closes last week, when they occurred on June 16 and 17.

Yet today’s distribution, with respect to the two up and two down market phases since 2000, differs. There were ten during the 2000/2003 decline, but none in the more recent 2007/2009 recovery. On the upside, the count is eight in the 2003/2007 expansion and two, so far, in the current upturn which started in March 2009.

Notably the NASDAQ fell on the following day in all the sessions since the 2009 low point. However, both the 2000 decline and the 2003 resurgence saw three times as many positive days as declines.

Yesterday’s estimate of today’s results, calling for declines, was correct. The projection for tomorrow foresees prices closing higher.  

DJIA              - .28 percent

NASDAQ        .66 percent

S&P500          -.28  percent

June 22, 2011            Market Loses Some of Yesterday’s Gain 

With prices returning some of yesterday’s run-up, this session closed with the three averages down about .67 percent. While it seems reasonable to expect a correction after a good day, the history of the DJIA, NASDAQ and the S&P500 closing prices fail to reveal such reactions. Instead, the record reveals a near equal number of declines and advances the next day.

Further, the analysis of these increase by the size of the preceding day’s advance, did not reveal a systematic relationship. Of course, the number of observations declined as the daily gains increased, but the division between the next day’s positive e and negative closes remained quite constant.

Today’s pattern –a loss after four increases for the DJIA and the S&P500, and a loss after two gains by the NASDAQ- occurred just twice before. One happened in January 2000 and the other in August 2009. All three indices declined on the following day.

As for the projection for today, based on the history of yesterday’s pattern, it worked for the DJIA and the S&P500, but failed for the NASDAQ.

DJIA              - .66 percent

NASDAQ      - .67 percent

S&P500          -.65  percent

June 21, 2011            NASDAQ – Best Day Since January 

Adding  2.19 percent, the NASDAQ scored its third plus-two percent day in 2011. Gains in excess of two percent are rare: just seven occurred in all of last year.  Sizeable gains also came to the DJIA –up .91 percent- and its best day since last Tuesday. The S&P500’s  1.34 percent represents its best day since mid-April.

These three indices continue to maintain uneven patterns; the NASDAQ now has two consecutive advances compared to four for the DSJIA and the NASDAQ. Today’s combination occurred on only 14 days since 1950, with just five since 1999.

The distribution of these five, over market expansions and declines, yields no insights about the future. Two incidents came during the 2000/2003 declines, while the other three were during the 2003/2007 and the current expansions.    

Projecting tomorrow’s changes based on this history, yields two positive days and three declines for the DJIA as well as the S&P500. The NASDAQ had three gains and two losses.

Yesterday’s forecast of today’s changes were on the money for the NASDAQ but were wrong for the DJIA and the S&P500.

DJIA               .91 percent

NASDAQ      2.19 percent

S&P500          1.34 percent

June 20, 2011            Market Edges Higher 

Prices moved up early, then maintained most of their gains; the DJIA ended up  .63 percent, the S&P500 rose  .54 percent and the NASDAQ added  .50 percent. This close is the first since Thursday for the NASDAQ to move in the same direction as the other two averages.  Today’s pattern of three successive gains for the DJIA and the S&P500, with just one-day’s advance for the NASDAQ, is the 17^th repeat since the beginning of 2000.

Its last occurrence was quite recently, on April 15. Thereafter, prices moved down for a few days, and then spurted higher, with almost no interruption, to reach their highest level since 2007. Then prices started to decline, to reach their current levels.

Looking at the record for tomorrow, both the DJIA and the S&P500 moved higher twice as often as they declined, whereas the NASDAQ scored ten gains but fell six times.

The projection for today, based on the history of Friday’s pattern, called for gains of the DJIA and the S&P500; this did happen. However, the NASDAQ record, based on the six loss and five advance history that repeated on Friday, failed to develop.

DJIA               .63 percent

NASDAQ       .50 percent

S&P500           .54 percent

June 17, 2011             Odd Pattern Lasts Another Day

The NASDAQ declined again, while the DJIA and the S&P500 continued to move higher. That makes it two days in a row for this unusual configuration that has occurred on only 11 previous sessions. The last such close –and the sole instance in this century- was on January 6, 2000.

Yet unlike yesterday’s repeat of the NASDAQ down with the DJIA and the S&P500 up, the data show no significantly unusual pattern on the heels of such duplication. Further, today’s price changes –the DJIA up  .36 percent, the S&P500 gain of  .30 percent whereas the NASDAQ fell  -.28 percent-  stand significantly lower than in 2000. Then the NASDAQ lost  -3.88 percent and the DJIA dropped -1.17 percent, while the S&P500 retreated just  -.096 percent.

On the next day, January 7, 2000, prices surged. The NASDAQ shot up more than four percent, while the DJIA and the S&P500 recovered almost three percent.

Overall, on the following day, the DJIA and the S&P500 prices rose twice as often as they fell, but the NASDAQ had six declines and only five advances.

DJIA               .36 percent

NASDAQ      -.28 percent

S&P500           .30 percent