June 1, 2011 Worst Drop Since August!
August 2010 marks the last time the market lost more than two-and-a-quarter percent – that was 200 trading days ago. Todays setback pushed prices down to mid-April levels. In brief, todays action wiped out all the appreciation of the last 28 days.
Yet this recoil need not have followed the four straight advances since last week. In the past, since 2000, prices rose for a fifth day as many times as they fell. Thus the record contradicts the belief that the market was due for a decline.
Nevertheless, given the long advance over the last five or six months, the question of whither the market becomes a front burner issue. The debt ceiling scuffle in Washington obviously will influence in some way on asset values. However, limiting our focus to the history of todays pattern, note that a major price drop with todays pattern occurred in October 2002. And shortly thereafter, the security prices, which had been in a free fall, stabilized and went on to achieve a new high in 2007.
Finally, most of these reversals after four straight advances were posted while the price trend was positive, and not while the market was in a free fall. With this background, given this experience, further declines and an end to the recent advances need not automatically follow todays substantial decline.
DJIA -2.22 percent
NASDAQ -2.33 percent
S&P500 -2.28 percent