USMarketView

MARCH 13, 2012     Break-Out?

With lots of cheering by the media as it ‘reports’ these ‘new highs,’ let’s put these advances in perspective. First the NASDAQ, and tomorrow the DJIA and the S&P500.

The NASDAQ has now closed above its 2007 high for several days in a row. Be alert, though: it failed to stay there last year. But an analysis of how and why 2012 is different from 2011, explaining why that sharp drop will not reoccur, has yet to surface.

Further, the current NASDAQ remains far below its 2000 peak. Sure that go-go gallop tripped over inflated earning perspectives, nevertheless does the current, some 50 percent discount reflect, or overstate reality?

March 12, 2012                 Mixed Day

While the DJIA and the S&P500 closed higher for the fourth straight day, the NASDAQ lost -.16 percent. The resulting pattern – plus four for the DJIA and the S&P500, and minus one for the NASDAQ – has happened just eight other times in the past 13 years. Further, our diagram shows this combination favoring turning points and turning points, with just two incidents  happening elsewhere. Note also that the following day is split evenly, with prices moving higher on four subsequent days and declining on four occasions.Another significant feature of today’s price changes is the small size compared to previous results. The S&P500 gain of  .02 percent,  is just a tenth of its median .23 percent change for this pattern. The DJIA and the NASDAQ show similar disparities, with closes in the past greater than today’s.Finally, since so many of the recent closes, just like today’s, bunch at turning points, be aware that prices could be on the verge of declines. 

 DJIA             .29 percentNASDAQ    -.16 percentS&P500         .02 percent 

March 9, 2012                  Prices Up for Third Straight Day

 The week closed with the DJIA, the NASDAQ, and the S&P500 rising for the third time in as many days.  Today’s pattern of up-three-for-all-three is quite unusual, even though four other such closes occurred since February 2, 2012.  The record shows a total of just 75 such days in the more than 3,000 trading days in this century.But note the even rarer feature of the past six trading days: today’s three successive gains follow three losses in a row. While the last repeat of this double chain happened, just as above, on February 2, we repeat the previous caution with an even stronger beware, that only four such days can be found over the past 13 years.In addition to their infrequency, today’s diagram reveals these to be recent, with none before the beginning of 2007.  As for insights of the near future, whether the current recovery will continue, or hit a ceiling, with another soon to come phase of falling prices, this history is less than optimistic. Whereas prices continued their advance after the most recent, last three repeats, the 2007 peak came just months after that February’s double three day sequence. DJIA             .11 percentNASDAQ     .60 percentS&P500         .36 percent  

March 8, 2012                  Best Day since Mid-February

Scoring their best daily increase in 14 trading days, these indices finally, if barely, returned to their values of February 16.

Moreover, in considering recovery to previous highs, and comparing current index prices with their tops of October 2007, we focus on significant differences. Clearly the best performer of these three is the NASDAQ: now at 106 percent of that high. The DJIA and the S&P500 so far have failed to reach parity with their previous highs. They remain at 91 percent and 87 percent of those closes.

The NASDAQ of course has reached, and bettered, that parity for some time, not only now but also months ago, before sliding back with the rest of the market last year.

Look for our future posts to focus and investigate these performance distinctions, and their implications for portfolio choices.

DJIA             .55 percent

NASDAQ   1.18 percent

S&P500        .98 percent

March 7, 2012                  First Gain of the Week 

It took till Wednesday for the market to record a positive close of near two thirds of a percent. Today’s pattern of  +1/-3, that is an advance following three successive losses, has 31 previous repeats in this century. Of these, a good majority shared the good times of an escalating market, with just nine happening during the 2000/2003 and 2007/2009 declines. Results for the following day continued this pattern’s association with higher prices, with 10 of the 15 next-day increases posted during the bull market of 2003/2007 and the current expansion that started in March 2009. DJIA             .61 percent

NASDAQ     .87 percent

S&P500         .69 percent

March 6, 2012                  Losses Deepen as Prices Post Third Consecutive Loss

The S&P500 closed   -1.54 percent down from the Monday’s close, and Monday’s decline of -.39 percent exceeded Friday’s -.32 percent decline. The NASDAQ and the DJIA experienced similar, or parallel, configurations of losses becoming steeper each day.

Graver yet is that the proportion of positive changes on the following day also decline. While the past ratio of gains to losses of today’s combination is only .57 percent, yesterday’s pattern had as many gains as losses on the next day. Further, Friday’s next day expectation showed increases at 1.5 times the frequency of losses.

Of course while it is fairly difficult to comprehend these abstract ratio comparisons, the keynote focus is the conclusion that today’s decline fits into a series of declines. It is not just single day oddness, but rather fits into a configuration experienced in the past.

DJIA           - 1.57 percent

NASDAQ   - 1.36 percent

S&P500       - 1.54 percent

March 5, 2012                  Prices Shaved as Week Begins

Declines continued for the second session in a row, providing a pattern of two declines following last Thursday’s gains. While not a rare combination, nevertheless found on just 71 other trading days since the beginning of 2000.   Yet today’s losses are far smaller than those in the past. The median S&P500’s decline is  -.89 percent, more than double its -.39 percent decline today. Similarly, the DJIA median change of -.87 percent dwarfs today’s  -.11 percent decline. Further, while the NASDAQ dropped -.86 percent, its median loss for this pattern is 1.46 percent.

On the other hand, today’s changes are far larger than those experienced recently; we underscore this difference since one of the comforting features of those earlier days is their littleness. History reveals that small daily changes occur more often when the trend of prices is up.

The diagram locates all of these 71 days, with green dots representing gains on the following day, and red showing further declines for the next day. On average, gains tend to dominate bear markets; they are less frequent when prices are trending up.

DJIA           - .11 percent

NASDAQ   - .86 percent

S&P500       - .39 percent

March 2, 2012                  Daily See-Saws Project Price Trends

‘After yesterday’s increases, the three indices turned down, ending almost where they closed three days ago. This trio of ‘minus after plus days’ has repeated 86 times since the start of 2000, representing about 3% of all trading days.’

Except for updating the figures, these lines are identical to Thursday’s opening sentences. They describe the unusual, three in a row repetition of opposing price changes.  Such contradictory fluctuations could continue; history reveals 40 sets of +1/-1/+1/-1 patterns in the past 13 years. Indeed, we have 20 days of the next sequence, of  the  -1/+1/-1/+1/-1 pattern.

Today’s diagram locates these, showing the percent change of the S&P500 on the last day of the sequence.

Note their cluster at the major turning points of the S&P500; five of these twenty days occur at the 2007 top; another three are near the 2009 bottom. They also indicate pauses, rather than reversals, in price trends, as occurred in 2005.

Further, daily price changes at turning points are much larger than those when the market continues in the same direction.  Accordingly, our focus on the minuteness of recent daily price changes is well considered: it projects a slow down before prices continue to move higher.

DJIA           - .02 percent

NASDAQ   - .41 percent

S&P500       - .32 percent

March 1, 2012                  Prices See-Saw Up 

After yesterday’s declines, the three indices turned up, ending almost where they closed two days ago. This pair of ‘plus after minus days’ has repeated more than 200 times since the start of 2000, representing about 7% of all trading days.

Yet we have not found a meaningful relationship connecting these pairs to trends in future prices.However advances on the following day have occurred more frequently during bull markets, but not in significantly different ratios.  

DJIA            .22 percentNASDAQ    .74 percent

S&P500        .62 percent

February 29, 2012             Market Declines 

The three indices turned down, following four plus days by the NASDAQ and the S&P500. While the DJIA fell, continuing its recent streak of up then down days.   Today’s close is the 479^th repeat of this pattern –down after an up day- in the more than 3,000 trading days since the beginning of 2000. On the following day in the past, all three indices came back positive less than half of the time, with only 220 such follow-ups.

With most of these upturns happening during the 2003/2007 and 2009/2012 expansions, today’s pattern continues the recent replication of combinations usually experienced in bull markets. 

 DJIA            -.41 percent

NASDAQ    -.66 percent

S&P500        -.47 percent