February 10, 2012 Up Then Down Continues
Prices closed lower, breaking the three day run of consecutive gains. Only 28 other days since January 2000 share this pattern. In the past, prices returned to the positive on the following day 23 times; they fell only 6 times.
We look at the record to consider the possible outcome of Mondays market. We find an almost equal number of one positive close after a single decline, +1/-1, as one decline after a single increase, -1/+1. These add up to 980 incidents, or about a third of the 3,000 trading days so far in this century.
A casual examination of these pairs reveals no correlation or clustering associated with bear or bull markets. Moreover, each of these segments of rising or falling prices, has almost an equal number +1/-1 and -1/+1 pairs.
Another approach in projecting the market on the following day, is to consider the history of todays pattern that is, a decline after three successive gains. In the past the next day positive closes exceeded the next days declines by a factor 22 to 5.
DJIA - .69 percent
NASDAQ - .80 percent
S&P500 - .69 percent