July 13, 2012 Does Loss Streak Hint at Market’s Future?
First the good news: prices moved up, finally, after six declines in a row for the DJIA and the S&P500, and five losses for the NASDAQ.
While there have been eight such runs since 1950, and three in this century, only one other sequence had a repeat less than 40 trading days later. That was in 1984, when prices dropped six days in a row, first on February 22 and then on April 4.
Similarly this year, multiple day losses first struck on May 17, to be followed by this sequence, 38 days later, in July.
Today’s diagram compares the prices for these two years, using the proportion of the daily closing price to that of the first trading date of each year.
First note that substantial losses happened before, not after, the six in a row sequence. Note the drop offs before each red vertical line, marking the earlier losses in a row. Prices then recovered, before the brown vertical line, which locates the repeat just days later.
As for the longer run, in 1984 values then dropped, falling to as little 90 percent of their January 1 close. But then a recovery resumed, moving prices to 105 percent at the year’s start.
We close with one further positive comment: prices recovered, they did not collapse after any of these runs. In short they were short term adjustments, not initiators of secular declines.
DJIA 1.62 percent
NASDAQ 1.48 percent
S&P500 1.65 percent
