January 7, 2013 Down Again, Following Advance After a Decline
Its the third price reversal in as many days a combination seen 87 times before in this century. While more than half coincided with rising prices, a significant portion happened close enough so market turning points to suggest a switch to caution.
Yet we see some optimism for future prices because of the moderate size of todays declines. Our diagram shows the average price change during the two declines to be far larger than when the price trend is up. The S&P500 average loss of -.96 percent in the 2000/2003 market, as well as the average -1.77 percent decline in 2007/2009, exceed the mean losses of -.65 percent and -.67 percent in the last two bull markets.
Thus todays drop of a mere -.31 percent implies that, as in the past with this pattern, prices are not heading down.
Of course, it is far from encouraging to realize this pattern clusters at turning points; we remind you also that prices fell on the following day on the last repeat of this pattern, which happened just before the holidays.
DJIA -.38 percent
NASDAQ -.09 percent
S&P500 -.31 percent
