USMarketView

Could this signal a downturn – as four of the last five repeats preceded declining prices? With the S&P500 down after yesterday’s rise, while the DJIA and the NASDAQ closed higher for the second straight day, we see a forerunner of direction change.

But turn in which way? True, prices fell after four of these last five closes, but one occasion preceded the 2003/2007 bull market!

Now it’s true that the S&P500 close was just down by -.07 percent, a number not so far from positive – yet this change is greater than  two other of these closes, when they came to only -.03 and -.05 percent. Further with another close at -.07 percent, the same magnitude as today’s, the majority of these previous occurrences indeed are as relevant by size as today’s!

DJIA                                                 .03 percent

NASDAQ                                          .06 percent

S&P500                                           -.07 percent

The market turned higher after two successive declines for the 74^th repeat since the beginning of 2000. On the following day in the past, the momentum was for a further gain on the following day, with increases outnumbering declines   55 percent to 45 percent.

Overall, the next day’s average daily NASDAQ change comes to .27 percent over the two bear and two bull markets of the last 13 years. That beats the S&P’s average of .17 percent; it is more than double the DJIA’s .12 percent.

Our diagram indicates the following day’s incidents for the S&P500, with the green triangles showing gains while the red circles denote declines.

The NASDAQ changes on the following day, on average, overwhelm both the DJIA’s and the S&P500’s. Note also that the previous bull market generated larger daily changes than the current expansion.

DJIA                                                                        .20 percent

NASDAQ                                                                .15 percent

S&P500                                                                  .30 percent

While declines continued, losses were modest and far smaller than yesterday. The DJIA fell only -.19 percent, only a tenth of the day before.

The outlook for tomorrow, based on the history of two losses after a positive day, favors an uptick. But the margin is small, with 54 percent gaining and 46 percent declining. Further, most of the plus days happened during the 2003/2007 bull market; the current, since March 2009 up phase shows no trend, with slightly more losses than gains on the following day.

Meanwhile our diagram reveals this price recovery is on track with the last bull market. Currently 915 trading days since its last, March 2009 bottom, the S&P500 continues to parallel the 2003/2007 rise which turned down after 1,154 days of expansion.

DJIA                                                 -.19 percent

NASDAQ                                          -.29 percent

S&P500                                            -.31 percent

October 23, 2012                   Another Rare Close, with an Encouraging Past 

Today’s market combines a rather modest NASDAQ loss of -.88 percent with a substantial, -1.82 percent DJIA decline, a result seen just 13 other times in this century’s 3,000+ closes. The good news is that surging prices almost always followed these deep losses. Indeed two signaled the 2003/2007 bull market. Another two became early forerunners of the 2009 recovery, while the four happenings in the 27 trading days between October and November of last year presaged the significant climb that lasted to last July.

But the ride was not smooth. While the NASDAQ advanced 11.4 percent between the highs of last October and June 21, 2012, it first dropped 8.1 percent in the 27 trading days from October 18 to November 25, 2011.

One final note: today’s S&P500 still stands 6.6 percent above this June’s top, while the DJIA remains 4.2 percent higher and the NASDAQ is up 2.3 percent despite the many recent losses.

DJIA                                                 -1.82 percent

NASDAQ                                          - .88 percent

S&P500                                            -1.44 percent

Today’s market combines a rather modest NASDAQ loss of -.88 percent with a substantial, -1.82 percent DJIA decline, a result seen just 13 other times in this century’s 3,000+ closes. The good news is that surging prices almost always followed these deep losses. Indeed two signaled the 2003/2007 bull market. Another two became early forerunners of the 2009 recovery, while the four happenings in the 27 trading days between October and November of last year presaged the significant climb that lasted to last July.

But the ride was not smooth. While the NASDAQ advanced 11.4 percent between the highs of last October and June 21, 2012, it first dropped 8.1 percent in the 27 trading days from October 18 to November 25, 2011.

One final note: today’s S&P500 still stands 6.6 percent above this June’s top, while the DJIA remains 4.2 percent higher and the NASDAQ is up 2.3 percent despite the many recent losses.

DJIA                                                                                                    -1.82 percent

NASDAQ                                                                                            - .88 percent

S&P500                                                                                              -1.44 percent

Values remained just about unchanged from Friday even though the DJIA, the NASDAQ and the S&P500 closed with gains – for the S&P500’s appreciation was just .04 percent! An occasion so rare that it beat only 87 of the other 1700 positive increases in this century. Similarly, the DJIA’s plus .02 percent exceeded just 37 positive smaller gains.

The NASDAQ, however, added .38 percent, not much of a change yet a result large enough to rank as the 464^th biggest since January 2000.

On the following days, in the past, prices moved higher as often as they declined. Yet the average daily decrease during bear markets was far deeper than when prices were trending higher. Similarly, price increases during the bear phases exceeded the typical gain during the two bull markets of 2003/2007 and 2009 to date.

DJIA                                                                                             .02 percent

NASDAQ                                                                                    .38 percent

S&P500                                                                                      .04 percent

In this century’s 3,000+ trading days, only 157 declines are deeper than today’s –and what’s scarier–  109 are part of the last two bear markets. Our diagram reveals only nine such closes over the 2003/2007 expansion; these account for less than one percent of all trading days during that period when prices were climbing to new highs.

Yet their recurring incidence in the ongoing recovery since the last bottom of March 2009 tends to ameliorate the near obvious conclusion that the current market is heading for a correction if not a free fall. So far near four percent of the S&P500’s  sessions since March 2009 suffered losses worse than today’s.

Further, an optimistic interpretation can focus on the timing of these recent repeats. The diagram clearly shows that they cluster at the bottom of declines. Accordingly, an equally valid but optimistic interpretation is that they reveal upcoming price increases rather than signaling further depreciation.

Clearly that has happened so far, with these substantial retreats creating uncertainty before prices recover and surpass previous intermediate highs.

This identical structure characterizes also the following day: while only 42 percent of the next day closes are higher, two-thirds happen during periods of expansion.

DJIA                                                                                                                   -1.52 percent

NASDAQ                                                                                                           -2.19 percent

S&P500                                                                                                             -1.66 percent

The markdowns of  the DJIA, the NASDAQ and the S&P500 after yesterday’s gains yields a -1/-1/-1 pattern, a frequent combination seen some 483 days in this century. While this numerous history provides firm statistical support for projecting tomorrow’s closes, unfortunately, in the past, the following day is split just about evenly between a further gain and a loss.

While advances outnumber declines, they account for just 55 percent of the next day closes.

We draw attention to a further inability, to sort these happenings by bear and/or bull periods. While they accounted for 14 percent of the 2000/2003 decline days, these increased to 17 percent in the following recovery, and then to 19 percent in the 2007/2009 drop. However, since then the frequency comes to just 13 percent.

DJIA                                                                                                             -.06 percent

NASDAQ                                                                                                   -1.01 percent

S&P500                                                                                                      -.24 percent

The market continues to chart new parameters as it unravels a continuing flow of unusual and infrequent daily patterns. That process diminishes our ability to model current price developments on the past.

Today’s close of four straight DJIA advances combined with three up days for the NASDAQ and the S&P500 has just one precedent – and that was at the beginning of 2001.

Obviously too far away, and not enough repeated days, to provide a semblance of a statistical comparison. So we step away, for today, reporting but not projecting.

DJIA                                                  .04 percent

NASDAQ                                           .10 percent

S&P500                                             .41 percent

The DJIA led the way, increasing for the third straight session while the S&P500 and the NASDAQ repeated yesterday’s plusses. Yet the recent pattern of ‘rare’ or infrequent patterns continued, with today’s occurring just six previous times in the past 13 years.

More significant, moreover, is that two of these happened as recently as September 10 and July 30 of this year, with prices falling on the following day.

DJIA                                                  .95 percent

NASDAQ                                         1.21 percent

S&P500                                           1.03 percent