August 6, 2012 Second Advance
Prices moved higher for the second straight session, a pattern that has occurred 217 times since the beginning of 2000. However, only three of these closes followed four straight declines -which is our situation today. The diagram identifies these with a red vertical line.
Yet, the many observations -the 217 points- fail to yield any insights as to (1) whether this pattern helps to identify the market’s direction, and (2) whether prices will rise or fall on the following day.
As for direction, this pattern accounts for 5.5% of all closes in the first downturn but 7.9% of the days in the second downturn. Similarly, the first bull market has 8.4% of this pattern whereas the current phase comes in with just 5.8% so far.
Turning to tomorrow, we see that while prices fell about twice as often as they increased on the following day, they nevertheless have too much variance to provide reliable projections.
Finally, turning to the three closes that occurred after four declines in a row, we fail to find clues as to their place or their next day results.
DJIA .16 percent
NASDAQ .74 percent
S&P500 .23 percent
A