USMarketView

February 28, 2012             Pattern Signals Higher Prices

Today’s unusual pattern –only five other in this century- of four straight gains for the NASDAQ and the S&P500 while the DJIA finally ended higher, after two losses in a row, is another indication of further gains ahead. Our diagram reveals this combination occurring only while daily values advance.

Yet that one of these closes happened just before the top of October 2007 requires a qualification for this optimistic inference. Further, the current, today’s close, also comes after recent substantial advances; it could very well duplicate the turn-around of 2007.  It may be only a coincidence, that today’s S&P500 advance of .34 percent is almost identical to the .33 percent close of 2007; nevertheless, we must not overlook this history.

Finally, the fact that we have only five such closes -out of the 3,000 plus trading days since 2000- means this expectation requires a substantial caution.

DJIA             .18 percent

NASDAQ     .69 percent

S&P500         .34 percent

February 27, 2012    Another Day of Small Changes

The DJIA opened the week down -.01 percent, the exact same markdown as on Friday of last week. Meanwhile the NASDAQ and the S&P500 closed higher for the third successive session. A pattern so rare that it occurred just once before, on December 20, 2010, thus obviously not useful for projecting when and how this combination will occur again.

But if the analysis shifts from ‘how often’ to focus on ‘how much’ daily percentage changes, we observe a useful insight. Further, concentrating on only small daily downs and ups –between -.02 percent and +.02 percent- the diagram reveals their preponderance in bull markets. Yet these days seem near absent when prices retreat.

There have been 58 market days when the range of the daily DJIA changes came in between -.02 and +.02 percent. With just 11, or .92 percent occurring over the two bear markets while 47, or 2.4 percent hit during the two rising prices segments, it seems almost obvious that these combinations are bull market friendly.

Additionally, these same conclusions apply to the NASDAQ and the S&P500: small changes in their daily values cluster when prices are trending up.

DJIA -.01 percent

NASDAQ .08 percent

S&P500 .14 percent

February 24, 2012             Minor Ups and Down

The DJIA losing  -.01 percent today with the NASDAQ and the S&P500 notching up  .23 percent and .17 percent, yields a pattern seen just 19 times in this century. However, considering the DJIA’s minute, negative change, it seems foolhardy to base a projection on this smallness.

In fact, had the DJIA official close been plus .01 percent, yielding a plus two pattern for the day, then that frequency of 221 days since 2000, would yield a more reliable base for forecasting the market’s future.

Further, these two different scenarios, apart by only .02 percentage points, result in substantially different scenarios. While the actual, DJIA – .01 percent change, shows twice as many gains as losses for the following day, the comparison ‘what might have been’ pattern has an equal number of gains and losses.

Accordingly, the lesser risky alternative is to stand aside when projections vary to this large extent while the historical statistics show almost no difference. 

One other caution – the many news reports focusing on the recent closes as ‘the highest point since 2008’ fail to note that prices were in a free fall from the previous October 2007 high, not recovering till the beginning of 2009. Not a promising comparison for the many people hoping for a strong market in the future.

DJIA            -.01 percent

NASDAQ     .23 percent

S&P500         .17 percent

February 23, 2012             Largest Gain in a Week

The NASDAQ closed higher, scoring the first positive close after three straight losses. It, as well as the DJIA and the S&P500, posted the largest advance since last Thursday, when each index gained more than one percent. Today’s advance by each index after yesterday’s losses is a familiar pattern, occurring some 509 other times in this century. However, this count falls to just seven other days when the NASDAQ suffered three successive declines, as it did this week.

With these closes distributed almost equally over each of the two bear and the two bull markets since 2000, they do not provide insights into the direction of prices in the future.

Moreover, since three of the following days show losses, while the other four managed, projections for tomorrow are impossible.

DJIA            .36 percent

NASDAQ    .81 percent

S&P500        .43 percent

February 22, 2012             Further Declines

The NASDAQ declined for the third successive session, while the DJIA and the S&P500 fell for the second day in a row. Today’s is the 19^th repeat since the beginning of 2000 of this pattern. On the following day, in the past, the NASDAQ and the S&P500 had the same number of declines as increases, but the DJIA turned in 11 gains and only 7 losses.

Note how often this pattern coincides with changes in the direction of prices, not only when prices turn down but also when they move up.

DJIA            -.21 percent

NASDAQ    -.52 percent

S&P500        -.34 percent

February 21, 2012             Another Not Much Change Day

Prices hardly changed at all as the NASDAQ fell -.11 percent and the DJIA gained .12 percent; the S&P500 increased .07 percent. This pattern, of three successive advances for the DJIA and the S&P500, and two losses in a row for the NASDAQ, happened  just three other times in this century.

The diagram shows these occurring in widely different circumstances. One is near the 2000 market top, another in the pause in middle of the 2003/2007 bull market, while the last previous close, in 2012, marked the market regaining its recent losses.

Yet considering each of these small closes separately reveals a most curious contrast. The S&P500  by itself closed 127 times in the range of zero to today’s plus .07 percent. The count for the DJIA is 208 in its range of zero to .12 percent, while the NASDAQ has the least, with  only 125 days between -.11 percent and zero.

But the most significant property –shared by these three indices- is that nearly all these small gains came during periods of rising prices.

We plan to continue this inquiry into small daily changes, and consider the relationship between market trends and negative closes.

DJIA             .12 percent

NASDAQ    -.11 percent

S&P500         .07 percent

February 17, 2012             Not Much Change

A small loss by the NASDAQ offset slight increases in the DJIA and the S&P500. With all three indices scoring gains on the previous day, today’s pattern is +2 for the DJIA and the S&P500, and -1 for the NASDAQ. This combination has occurred 35 previous times in the 3,000 some trading days of this century.

The diagram shows these days, with green denoting increases on the following day and red indicating declines.

The graph illustrates two important facts. One, no insight into the future, since these results are distributed just about equally between good times and bad times. Two, similarly, no projection for the following day is possible, because next day gains are just about equal to next day losses.

DJIA             .36 percent

NASDAQ    -.27 percent

S&P500         .23 percent

February 16, 2012             Further Odd, Rare Close

Today’s strong performance and optimistic outlook could be contradicted by the record of this pattern: the S&P500 rising after two declines in a row, while the DJIA and the NASDAQ close higher after yesterday’s decline.  This is just the fifth repeat of this pattern since the beginning of 2000.

Prices fell substantially after each of these four previous incidents. That holds in the short run but the longer term outlook is brighter. Prices continued higher in the last two incidents.

DJIA             .96 percent

NASDAQ    1.51 percent

S&P500        1.10 percent

February 15, 2012            Another Odd, Rare Close

Only six other days closed with the same pattern as today: the S&P500 down for the second day in a row, while the DJIA and the NASDAQ declined after yesterday’s gains.

The diagram reveals no particular configuration with respect these happenings. Two occurred during the 2000/2003 declines, whereas one each struck during the 2003/2007 and the 2009/to date expansions.

In the past, prices increased four times on the following day and declined twice.

Given a record of just six incidents, summaries are mere descriptions rather than useful forecasts and projections.

DJIA           -.76 percent

NASDAQ   -.55 percent

S&P500       -.54 percent

February 14, 2012            Minute Changes Yield Mixed Signal

Valentine’s Day closed with a -.09 decline of the S&P500 and even smaller gains for the DJIA and the NASDAQ; clearly an unusual pattern, occurring on a mere five days in this century. Indeed, today‘s is the first repeat since August 2007.

Further, these came not only as prices approached a significant drop, but also just before the market started a major recovery.

The following days had four gains and just one decline.

DJIA            .03 percent

NASDAQ    .02 percent    

S&P500       -.09 percent