USMarketView

July 31, 2012                  Second Decline

Prices dropped further, resulting in a pattern of two straight declines. There have been 406 such days since 1950, with 163 so far in this century.

Our diagram plots the S&P500 closes on the following day. These are almost evenly distributed between advances -52.8 percent- and declines 46.6 percent.

Further, these show a wide dispersion by size, with the DJIA range from  -4.7 percent to +6.8 percent; the NASDAQ going from -5.2 percent to +14.2 percent and the S&P500 falling from -5.2 percent to + 7.1 percent.

There is not much stability in these numbers, and as a result, the outlook remains clouded.

DJIA                    -.49 percent

NASDAQ             -.21 percent

S&P500               -.43 percent

July 30, 2012    Pattern Occurred 168 Days Before 2007 Top

Today’s decline after Friday’s pattern of three gains for the DJIA and two advances for the NASDAQ and the S&P500 yields a combination seen only once before in this century. That came on February 8, 2007, some 168 days before the market topped out on October 9, 2007. See the diagram below.

Yet we are not calling for a soon to be downturn. We’re merely reporting a historical fact. Indeed, having brought this to your attention, we keep this post brief and sign off.

July 26, 2012             Strong Gains

The DJIA advanced for the second day, adding 1.67 percent; the NASDAQ and the S&P500 turned positive after four successive declines, adding 1.37 and 1.65 percent. While there have been 19 previous closes, since 2000, with this pattern, only four gained a larger percentage.

Prices on the following day, in the past, declined more often than they advanced.

DJIA                      1.67 percent

NASDAQ             1.37 percent

S&P500                1.65  percent   

July 25, 2012              DJIA Up – NASDAQ and S&P500 Post 4^th Loss

The green vertical lines locate the only three other days with this pattern, while the red circles show the 18 closes when all three indices declined four days in a row.

With today’s changes so small – the DJIA gained .05 percent while the S&P500 lost .03 percent – an analysis of just the bare count of ups and downs could well be erroneous. After all, how accurate are these measurement, and how large is the margin of measurement error?

That’s why the diagram shows the size of the S&P500 losses for the ‘three indices down four days in a row.’

These declines are large by themselves, and overwhelming in comparison to today’s minute losses.

Nevertheless, with this pattern occurring usually at lower turning points, we see no signal of an imminent market top.

DJIA                     .05 percent

NASDAQ           -.31 percent

S&P500               -.03 percent   

July 24, 2012               Prices Fall Again – Now Three in a Row

The record –and our graph- shows just 57 other closes with three declines in a row since the beginning of this century. Most of these –some 34- occurred while prices climbed higher, during the 2003/2007 and 2009/2012 bull markets.

Further, note that in these two periods, prices increased on the following day more often than they declined. On the other hand, and consistent with this drift, the number of price increases were just about equal to the number of declines during the two bear markets.

We noted, a few days ago, the inconsistency of these patterns: one day they signal higher prices in the future, and just as often, on other days the patterns are consistent with falling prices.

Accordingly prudence is required while these cross currents continue and if these patterns of frequency counts do reflect market direction. And so far, the unfolding days have not contradicted this approach.

DJIA                    -.82 percent

NASDAQ            -.94 percent

S&P500               -.90 percent   

July 23, 2012               Two Declines in a Row

With prices falling for the second straight session, it’s opportune to revisit the two recent stretches of five declines in a row. Our diagram shows the price line of the S&P500 since the beginning of this century and, in red, the days when declines lasted for five or more straight days.

It’s obvious that these negative runs cluster when the trend of prices is down. Not so evident are the two red dots just before, and just after the market changed direction in October 2007.

Further, the current expansion already has more of these negative-run incidents than the 2003/2007 bull market.

Moreover, just one of these negative runs happened before the end of 2011. Accordingly, with the balance of long negative runs occurring since prices hit their first top and plateau, this market requires caution.

Today’s pattern of two declines after three straight advances happened just four times since 2000; prices declined twice, and rose twice, on the following day.

DJIA                      -.60 percent

NASDAQ            -1.20 percent

S&P500                 -.70 percent   

July 20, 2012   Contradictions Continue as Latest Pattern Signals Higher Prices Ahead

Just two days ago our bulletin called for lower prices in the future. That conclusion was based on the then current pattern of two advances in a row. Today, with the markets posting a single session’s loss following three straight gains, the same data base shows this combination occurring mostly when the trend of prices is up.

We offer no apologies, much less an explanation to coordinate these twin, opposite projections.  The diagram indicates that of the 27 happenings, 23 repeats took place during the last two bull markets – in 2003/2007 and the current phase that started on March 2009.

Clearly, the safe haven conclusion advises watchful wariness, since projections that about turn within days fail to provide a basis for financial decisions.

DJIA                      -.93 percent

NASDAQ            -1.37 percent

S&P500                -1.01 percent   

July 19, 3012                     Rapid Price Changes Unusual

You’re right if you feel surprised at the recent spurt of volatility in prices. Indeed prices have been fluctuating more frequently in this recovery than in the last, 2003/2007 boom.

The diagram reveals substantially larger  variance of daily price changes  when values are heading down. Notice the two declines have variances five to seven times as large as during thr 2003-2007 expansion.

Thus it is surprising that our current expansion, since March 2009, displays double the variability of that last bull market.

Anther way to interpret this difference is to accept as a fact that down markets fluctuate more than up markets. From this supposition, it is a logical step to view these recent fluctuations as a signal that the current bull market is nearing its end.

July 18, 2012                          Do  ‘Gains Continue’ Imply Losses Ahead?

Prices advanced for the second day in a row, a not common pattern: just 218 such closes in this century. We continue this review, adding yesterday’s pattern of 94 closes of a loss, and the day before with a single gain. This yields 33 days, since 2000, of +2/-1/+1.

In the past, losses outnumbered gains on the following day by a ratio of 58 percent to 42 percent.

Further, the preponderance of next day losses increased when prices were moving higher. For example, the 2003/2007 expansion had 10 declines and just 4 gains; but the subsequent 2007/2009 decline saw three advances and only two declines.

Accordingly, we infer a possible rule of thumb: a gain tomorrow implies lower prices in the future, whereas a loss could mean that prices will continue higher.

DJIA                     .81 percent

NASDAQ            1.12 percent

S&P500                 .45 percent   

July 17, 2012                              Third Reversal in Three Days

Prices moved higher after yesterday’s losses, which in turn, followed Friday’s gains. This pattern,  +1/-1/+1, is the 88^th repeat since the beginning of 2000. A look at today’s diagram locating these days, shows a substantial number occurring at market turning points. There are eight, for example, at the end of the 2000/2003 decline and the beginning of the 2003/2007 growth era. Another six cluster around the 2009 bottom. Then 13 happen immediately before and just after the October 2007 peak.

Despite this seeming distribution signaling turning points of prices, we have not found a meaningful nor systematic relationship between this pattern and changes in price trends.

Further, these repeats occur as little as two days apart to as long as 211 days. Also the median spacing runs from 13 days since 2007 to 21 days between 2000 and 2007.

Turning to the next day, in the past, prices moved higher as often as they declined. Moreover, this result holds in good times as well as when prices are trending down.

We pass these observations along, noting that our analysis found no systematic insights or relationships between this pattern and prices in the future.

DJIA                     .62 percent

NASDAQ             .45 percent

S&P500                 .74 percent