November 2, 2011 Prices Rise in Ongoing See-Saw
Gains larger than one percent replaced the substantial declines of the past two days. Yet while large opposite, almost daily, changes dominate the action, the resulting patterns are far from common. Todays combination the three indices up after yesterdays two successive declines of the DJIA and the S&P500 combined with three NASDAQ losses in a row- has occurred on just twenty days since 1950 and eight times in the last 12 years.
Further, we find four of these last eight in the 2000/2003 decline with the other four during the past 2007/2009 bear market. Thus the trend of many recent closes, clustering when the trend of prices is down, continues.
Nevertheless, the market has gained near six percent over the last thirty days. How can these contrary facts exist at the same time?
One approach, shown in the current diagram, explains these contrary facts by a seeming continuity of underlying yet unknown forces that results in these repeats. Whereas the early losses of the current cycle were sharper and faster than the previous, 2000/2007 cycle, and then followed by a slower recovery, by now both cycles run near parallel.
Finally, note that we are now 1,020 sessions from the October 2007 peak; and that the previous cycle lasted 1,895 days before prices returned to their previous high. By this logic, the inference that any major downturn is far in the future, seems appropriate.
DJIA -2.48 percent
NASDAQ -2.89 percent
S&P500 -2.79 percent