USMarketView

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

July 13, 2012                           Sixth Straight Loss

Though the daily losses continue, the record reveals the bottom is near. That’s true at least for the S&P500. It posted only 12 trading days in this century, so far at least, with more than five successive declines. There are eight instances like today, with six losses in a row; three closes of seven straight losses and just one, in October 2008, with eight successive declines.

But the DJIA and the NASDAQ history reveals twice as many long losing strings. They have 16 instances of six losses in a row and three closes of eight losses.

 Yet the diagram shows  these NASDAQ losing runs not clustering at upper turning points. Indeed, even including the bubble debacle of the early 2000′s, these long daily declines usually occur after the worst declines. Yet, the one exception is just before the last, October 2009 top: it shows a clear anticipation of the severe, 355 day decline to come.

DJIA                           -.25 percent

NASDAQ                   -.75 percent

S&P500                     -.50 percent

July 11, 2012      Fifth Straight Loss

Five  declines in a row, a run so rare, that only 8 other such closes have occurred in the past 37 years. Yet the last repeat happened just 37 trading days ago, on May 17th.

Losses were severe, with the NASDAQ dropping 5.28 percent; the S&P500 fell  4.57 percent and the DJIA 3.78 percent.

Yet values revived, recovering  more than those sharp and rapid reversals, so that by July 3, the NASDAQ closed 7.13 percent above that low; similarly the S&P500 gained 6.10 percent while the DJIA closed 4.65 percent higher.

The table lists the dates of these eight previous occasions, and the percentage declines on each of those ‘fifth day’ negative runs. Notice how much larger all of these losses were compared to today’s more moderate markdowns.

Yet, on five of the following days, declines econtinued for the sixth straight session. These included our most recent repeat, on May 17, 2012.

DJIA             -.38 percent

NASDAQ     -.49 percent

S&P500        -.00 percent

July 10, 2012          Only Five Other Such Losses Since 2000

With the DJIA and the S&P500 dropping for the fourth straight day, while the NASDAQ fell for the third day in a row, the market revisited a pattern seen just five previous times in this century. Yet the last three repeats hit the tape since March 2009, the beginning of the current price recovery.

What can be the meaning of this rare pattern clustering in the last few months? Further, we point out that several of the patterns posted in recent days have been concentrated in this same period.

The diagram locates these days, with the size of each loss indicated by the numbers in red.

Note that the most previous repeat happened just weeks ago, on May 17, 2012. Moreover, prices continued to fall on the following day, with losses of -1.2 percent for the DJIA, -2.1 percent for the NASDAQ, and -1.5 percent for the S&P500.

DJIA                      -.65 percent

NASDAQ             -1.00 percent

S&P500                 -.81 percent

July 9, 2012                  Slight Losses Continue

The DJIA and the S&P500 fell for the third straight session while the NASDAQ declined for the second day in a row. The good news, though, is that of the ten other such closes in the past 13 years, only three happened while prices were on the decline, during the 2000/2003 bear market.

Accordingly, these closes suggest that the trend is for a continued higher prices.

Losses, however, were the rule on seven of the ten following days. Further all four of the recent repeats since the 2009 trough, fell another day.

DJIA                                    -.28 percent

NASDAQ                             -.19 percent

S&P500                                -.16 percent

July 6, 2012                   Pattern is Third Repeat Since Early May

Two losses of the DJIA and the S&P500 combined with a single day’s decline of the NASDAQ must by now be a familiar refrain. Today’s close is the third such repeat in recent months. Whereas only 34 such combinations occurred in this century, today’s close follows the most recent one on June 21. And that one came after the other two in early May.

An extraordinary situation, given that the record shows only 34 such closes since the beginning of 2000.

However, our search fails to reveal a reason or a cause and effect relationship between this combination and other, explanatory facts. In short, while history reveals this run as unusual, we nevertheless fail to find an explanatory relationship for this uncommon repeat.

Prices moved higher on the following day after each of these last three repeats.

DJIA                           -.96 percent

NASDAQ                  -1.30 percent

S&P500                      -.94 percent

July 5, 2012                            A Rising Prices Pattern

Declines in the DJIA and the S&P500 while the NASDAQ just about broke even with a .03 point advance greeted the market after the July 4 holiday. But our focus is on the pattern of closes between Wednesday of last week and today: that is, five trading days ago.

Then, all three averages moved higher for the second day in a row; accordingly we consider the pattern of ‘two successive gains posted five days ago.’

These total 216 since the beginning of 2000, and prices moved higher on the following day slightly more than half the time, for a total of 51.4 percent.

However, the record reveals the gain proportion increasing over time. It was just 43.9 percent during the 2000/2003 decline. That ratio rose to 51.0 percent in the following recovery; stayed at 51.7 percent between the top of 2007 and the bottom of March 2009. Since then, 61.7 percent of the following days closed with higher prices.

DJIA                              -.36 percent

NASDAQ                        .00 percent

S&P500                         -.47 percent

July 2, 2012                         A Rising Prices Pattern

At the close, both the NASDAQ and the S&P500 were up for the second day in a row, while the DJIA was down after Friday’s gain. In the past, for the 16 previous closes with this pattern in this century, 11 occurred while prices were on an upswing. This allows a conjecture: that prices will continue to move higher in the near future.

Such a projection, coming at this time, while the daily market gyrates up and down, is both welcome yet hazardous. Nevertheless, the data show this pattern favors a rising price trend by a factor of 10:6.

Further, the diagram indicates that on the following day, prices increased more than twice as often as they declined.

DJIA               -.07 percent

NASDAQ        .55 percent

S&P500          .25 percent

The NASDAQ enjoyed  a  3.0 percent advance, followed by the S&P500′s 2.49 percent and the DJIA 2.20 percent. It was the best day since June 6, 18 trading days ago, and raises the question what of tomorrow – will prices increase further, and if so, by how much. Or, will prices decline after this large gain?

The table above shows the changes, since the beginning of 2000, on the day following changes as large as today.

The S&P500 posted just about the same number of advances as declines -48 further gains and 47 losses. Further, it experienced about twice as many changes deeper than minus one percent as gains larger than plus one percent. A total of 27 worse than minus one percent and just 14 better than plus one percent.

The DJIA shows an almost identical history: 30 declines worse than minus one percent compared to just 20 gains larger than one percent.

The NASDAQ history presents a better history, with 73 advances compared to 67 declines. Yet losses deeper  than minus one percent exceeded similar gains 38 to 33.

Thus the footprints of the past do not support another large advance for tomorrow.

DJIA                2.20 percent

NASDAQ        3.00 percent   

S&P500          2.49 percent