USMarketView

December 13, 2012                         Another Infrequent Pattern

While the DJIA and the NASDAQ declined for the second day, the S&P500 turned down ending its string of six plus days. This yields a pattern seen on just eight other days in this century, though the most recent close occurred less than a month ago, on November 13.

Though prices retreated on the following day, the record shows values advancing two to one in the next session. The diagram reveals also today’s combination favoring a bull outlook, since five of these earlier nine closes happened during the 2003/2007 and two others since the 2009 bottom.

DJIA                                   -.56 percent

NASDAQ                            -.72 percent

S&P500                              -.63 percent

It was an exceptional day, posting small changes and an unusual pattern.  Adding just .04 percent, the S&P500 closed up for the sixth day in a row, but the DJIA and the NASDAQ declined, off   -.02 percent and -.28 percent.

There are just three other days in this century posting such minor changes – with two happening this year: on May 23 and November 13.

That prices moved higher after both days, generates optimism – allowing projections of continuing price appreciation.  

Yet forecasts with only two data points shriek for caution. With the entire basis of forecasting depending on numerous observations, robust statistical measures provide objective measures of faith. Indeed, our daily analysis is based on counting repeat performances. Accordingly, the spate of recent unique, or unusual, patterns dampens its reliability.

DJIA                                   -.02 percent

NASDAQ                            -.28 percent

S&P500                               .04 percent

December 11, 2012                               Further Gains

The momentum continues, with the DJIA and the S&P500 moving higher for the fifth session in a row. The NASDAQ stayed positive for the second day. Whereas only four other days closed with this pattern in the last 13 years, we focus instead on the size of today’s gains. With some 460 days in this century moving as much, or more, in this century, their occurrences allow provide an outlook for the future.

First, they happen more frequently during declining markets, accounting for 18 percent and 21 percent of the days during the 2000/2003 and 2007/2009 bear phases; but only 10 percent and 14 percent of the 2003/2007 and since the 2009 bottom.

Second, gains on the following days, however, dominate the bull markets, accounting for 44 percent and 42 percent of the bull market next days. They amount to less than 31% of the down market closes.

DJIA                                   .60 percent

NASDAQ                          1.18 percent

S&P500                             .65 percent

Two rare events occurring today join to forecast the continuation of the current positive, yet weak, period of rising prices. First, the NASDAQ moved up, only for the second time in the last seven market days, and joined the four day plus streak of the DJIA and the S&P500. The record shows only eight such closes previously, in the past 13 years, and with all but three happening during the last two bull markets, we infer the continuation of the current trend of higher prices.

These days are identified on the diagram with open circles and open triangles.

The second positive signal is today’s very modest advances. Just eight previous sessions closed with gains this small. Further, all occurred during bull markets, with the last five since the March 2009 bottom. The figure plots these with solid circles.

With these two factors reinforcing each other, we project a continuation of  current price advances. Yet the immediate outlook, for tomorrow, is not as rosy. On the following day, the S&P500 moved down as often as it moved higher. The DJIA, though, booked five gains against four losses. The NASDAQ shows the best next day performance, with six advances and only two retreats.

DJIA                                   .11 percent

NASDAQ                            .30 percent

S&P500                             .03 percent

The DJIA and the S&P500 closed higher for their third straight close, but the NASDAQ turned down after yesterday’s gain. There are just 12 other such days in this century, and on the following day both the NASDAQ and the DJIA moved higher eight times. The S&P500’s record, not as good, has an even number –six each- of declines and advances.

When it comes to uneven performances of these three averages, we have a wealth of data. For example, since 1950, the NASDAQ has declined 842 times while both the DJIA and the S&P500 moved higher. Some 200 of these days occurred in this century.

The market’s direction very much influences the performance on the following day. During this century’s two bear markets, all three indices fell two days out of three. The results are far better for the 2003/2007 growth period; then gains outpaced losing days 53:47 percent. The record for the current, since March 2009 advance, is best of all, having losses only a third of the time, while advancing near twice as often.

DJIA                                      .62 percent

NASDAQ                              -.38 percent

S&P500                                 .29 percent

The NASDAQ finally moving higher after four straight losses joined the second positive closes of the DJIA and the S&P500, suggest that the market will continue to move higher. The pattern of today’s close has occurred 24 times in this century. Nine of these occurred while prices were on the rise, during the 2003/2007 expansion, and a further seven happened since the last bottom in March 2009.

The outlook for the following day, however, is not as bright, since the record shows as many declines as advances. Further, the next day losses cluster when prices are rising, with ten declines in the two bull markets against six losing days.

DJIA                                      .30 percent

NASDAQ                               .52 percent

S&P500                                 .33 percent         

December 5, 2012         A Mixed Day

The NASDAQ off for the fourth straight day, a close seen only 89 earlier times in this century’s more than 3,000 trading days. These previous four day losing strings continued on to a fifth decline near half the time. The following day saw 43 declines and 46 gains. Further, only during the current expansion –since March 2009- has the following day seen more increases than declines.

However, today’s loss of just -.77 percent is substantially smaller than the -2.15 percent average loss of the NASDAQ when it declined four days in a row.

The DJIA and the S&P500 moved up after two previous losses in a row.

DJIA                                      .64 percent

NASDAQ                              -.77 percent

S&P500                                 .16 percent         

The NASDAQ extended its losing streak to three while the DJIA and the S&P500 fell for the second day in a row. It’s the 20th    repeat, since the beginning of 2000, of this pattern and leaves a mixed outlook for tomorrow. In the past, the NASDAQ moved higher 11 times on the following day, declining on 8 days. The DJIA has the opposite score, 8 increases and 11 declines, whereas 9 increases and 10 losses is the S&P500 result.

A more important spotlight though, is on the size of today’s losses. The NASDAQ’s -.18 percent has only 190 other, smaller losses in this century. Similarly, the DJIA and the S&P500 declines rank as the 201^st and 271^st place.

The diagram locates these closes for the S&P500, revealing that all but one happened during the 2003/2007 bull market. And that day, the last occurrence, was during the current expansion.

Yet there’s a caution necessary: one of these days was at the very top of that 2007 peak, and four others cluster immediately before that turning point.

DJIA                                         -.11 percent

NASDAQ                                  -.18 percent

S&P500                                    -.17 percent       

The S&P500 failed to extend its three day winning streak, the DJIA declined after two up days, while the NASDAQ fell for the second day in a row. This rare combination occurred 134 times since 1950; today is its 34^th repeat in this century.

Our diagram reveals this pattern happening more often during bear phases than when prices are rising. With about 2 percent of the 2000/2003 and 2007/2009 closes with this combination, and only .31 percent in the current rising market, we recognize another confirmation that prices are heading higher.

However, the outlook for tomorrow is for another decline. In the past, the DJIA closed lower on the following day twice as often as it moved higher. This projection holds also for the NASDAQ and the S&P500; they declined on 20 days and rose on only 13 of the next days.

DJIA                                         -.46 percent

NASDAQ                                  -.27 percent

S&P500                                    -.47 percent     

           November 30, 2012         The Outlook for December

          With the capital tax rate on the front burner of the fiscal cliff debate, the usual apprehension of tax motivated selling in December should escalate. That the S&P500 has gained almost 11 percent so far this year can only swell that angst. Indeed this year’s January-November performance ranks third, behind only the 18 and 16 percent gains of 2009 and 2003, in this century.

          Yet prices continued higher in those final months, adding five percent in 2003 and almost two percent in 2009 between the end of November and the year’s final day of trading.

          Whereas the January-November record divides almost equally between gains and losses –seven increases and six decreases since 2000- prices moved higher nine times in those years’ final month. The S&P500 fell only once, and that was by .1 percent in 2005, after the S&P500 rose 3.94 percent between January and November.

          In sum, December prices declined in only three of the last twelve years whereas they moved higher nine times. One could argue of course that tax inspired selling hindered the market, and that could be true; but it is far from demonstrating price declines in the year’s final month. That just did not happen.