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Closing up more than a full percentage point, the market moved in the same direction as the day before for the only time in the last five sessions. Today’s pattern of two gains in a row, following a  decline that came after a gain –             or +2/-1/+1 – occurred on 33 previous closes in this century. In the past, the median gain for this pattern is above one percent, with the NASDQ having the largest median of 1.7 percent. Further, the maximum advance for this pattern exceeds five percent for the DJIA and the S&P500; it is 6.4 percent for the NASDAQ.

The diagram reveals, however, that prices on the following day declined almost twice as often as moving higher. Indeed, in a counter intuitive fashion, losses exceeded gains during each of the two bull markets, while upticks just about equaled losses when the trend of prices was down.

Further, most of the following day declines took place during the market’s recovery, between 2003 and 2007, whereas higher prices on the next day has been the rule  since the 2009 trough.

DJIA                1.26 percent

NASDAQ         1.04 percent

S&P500           1.27 percent

We focus on the chain that started with last Wednesday’s decline; it was followed by another loss on Thursday, then prices alternated up and down for the next three days. That chain, of +1/-1/+1/-2 changes, is the 13^th repeat since the start of this century. Our diagram shows that nine of these closes struck at or near turning points. All of the other four happened while prices were on the rise, and those days were quite distant from market tops.

Further, on the following days, every one of the price changes during the two declines were large in the extreme. Losses generally exceeded 95 percent of all the other daily declines for the three Indices –the DJIA, the NASDAQ, and the S&P500- we follow. Similarly, gains were big; however, exceeded only 90 percent of the near 1,600 losses since January 2000.

These results differ substantially for the two expansions. Whereas one of these three positve next day changes also approached the 95 percent level, the other two positives, as well as all the negative following day changes were far smaller than their average.

In sum, whereas prices rose as often as they declined on the following day, this average behavior fails as a useful predictor of tomorrow’s price given the large dispersion of each event from the central value. Yet, the prevalence of this pattern at turning points should be viewed as a yellow caution flag.

DJIA                    .84 percent

NASDAQ            .43 percent 

S&P500              .61 percent

Rather than establishing a trend, the market continues to move in opposite directions on an almost daily basis. That’s quite unusual: today’s pattern has occurred just 56 times in the near 16,000 trading days since 1950. Yet its frequency is on the rise, with 29 repeats in the last 13 years.

Moreover, while the distribution of these days is about the same in bear as in bull markets, it has increased from .67 percent of all days between 2000 and 2003, to 1.13 percent of the sessions during the 2007/2009 decline.

Chances are about even that prices will move up –another direction change-  tomorrow, for in the past there have been 15 gains and 13 declines on the following day. However, in the period since the 2009 bottom, next day prices fell twice as often as they increased.

Furthermore, the declines in the current bull market have been substantial: five of the six losses exceeded minus one percent. Still, as if to demonstrate the whipsaws of this pattern, one of the three gains since 2009 exceeded two percent.

Similarly, during the 2003/2007 price expansion the S&P had losing days of -6.7 and -2.2 percent and, in the opposite direction, plus 4.8 percent.

DJIA                    -1.43 percent

NASDAQ            -1.36 percent 

S&P500              -1.83 percent

Prices recovering after two declines happened 74 previous times in this century, with the last two repeats occurring almost next to each other, last October 26 and October 23. While this pattern’s frequency, through good and bad times, averages about two percent, daily price changes vary over a wide range. They extend from near zero percent all the way up to plus fourteen percent.

Price changes on the following days display a similar wide breadth. They fell near five percent at the beginning of November 2008 and then gained over six percent just five days thereafter. Likewise, on the last repeats of this pattern, the S&P500 declined -1.44 percent on one next day, and then lost just -.07 percent  on the following next day; the DJIA’s changes were -1.82 percent and plus .07 percent for these same days.

Our diagram identifies these large change days, using solid green triangles for next day changes larger than plus two percent, and similarly solid beige circles for losses deeper than minus two percent.

These markings reveal that these large positive and negative next day changes cluster around turning points, when major changes occur in the trend of prices. Thus the changes near up six percent and down six percent happened four months before the market bottom of 2009 – and the down two percent and up near four percent pair occurred just days after that same 2009 bottom.

While the three repeats of this pattern since the end of last October may cause concern that the current market is near a top, note that past turning points happened only when price changes were significantly in excess of today’s changes.

DJIA                   .86 percent

NASDAQ            .97 percent 

S&P500              .88 percent

Prices fell again, but the DJIA and the S&P500 gave up only about half of yesterday’s declines; the NASDAQ’s retreat was slightly deeper, but its loss was just 71 percent of the day before. The frequency of two losses in a row occurs about as often when prices are falling as when they are rising. This is unlike yesterday’s result, where losses were more frequent during good times than bad times.

Further the magnitude of these losses is about twice as large during the two declines of 2000/2003 and 2007/2009 than during the expansions of 2003/2007 and since the last low point of March 2009.

In the past, prices on the following day increased more often than they declined, by a ratio of 93 increases to 78 declines.

DJIA                     -.39 percent

NASDAQ           -1.09 percent 

S&P500              - .67 percent  

Prices fell sharply, with the NASDAQ off -1.53 percent, the S&P500 down -1.24 percent, and the DJIA losing just -.78 percent. Surely this reversal is unpleasant in the light of the recent price accelerations. Yet because there have been nearly 500 declines this sharp in this century, with more occurring during rising markets, today’s fall off should not in and of itself signal declines are ahead.

In fact, these large falloffs happen far more often during bull markets than bear markets! While there were 50 during the 2000/2003 decline, accounting for 6.8 percent of all closes, they accounted for 21.8 percent of all closes in the following expansion. Similarly the next bear market from 2007/2009 had 34, or 9.6 percent, days with these fall offs whereas so far in the present expansion they amount to 15.2 percent.

The outlook for tomorrow, however, remains unclear. In the past, prices moved higher 61 percent of the time during the 2003/2007 increase, but that ratio is only 52 percent in the days since March 2009 bottom. These proportions are 42 and 65 percent, respectively, for the two earlier bear phases.

For the record, yesterday’s projection was correct in seeing losses for today.

DJIA                     -.78 percent

NASDAQ           -1.53 percent

S&P500             -1.24 percent  

Upward momentum continues to push prices higher, reaching values not seen since the end of 2007! Nevertheless, both the DJIA and the S&P500 failed so far to reach their 2007 highs; the DJIA now stands at 99.09 percent of that peak and the S&P500 is at 97.8 percent. Only the NASDAQ has surpassed that last top and now at 114.3 percent, maintains its substantial advantage over these two averages.

Today’s closing pattern of two straight advances for the DJIA and single upticks for the NASDAQ and the S&P500 is its 25^th repeat in this century. The diagram fails to reveal a systematic relationship between this pattern and previous bull and bear markets. It shows no consistency, with nine happenings evident in the 2000/2003 decline while eight others occurred so far in the current, since March 2009, recovery.

Declines outnumbered gains on the following day; the margin is substantial, with 15 losses compared to just 7 increases overall. The tally since 2009, however, is more favorable. The DJIA saw five increases against three losses while the NASDAQ had an equal number of advances and declines. Only the S&P500 ended with more days in the red, losing in five sessions and gaining in just three.

DJIA                    .39 percent

NASDAQ            .68 percent

S&P500              .73 percent

Today focuses on the market’s recent spat of unusual patterns, and the frequent repeats of positive increases smaller than .1 percent. While these amount to a little more than five percent of all trading days -or on average one day out of twenty- these negligible daily increases occur just about twice as often when prices are rising.

Our table displays the distribution of these small gains, as well as all other, larger daily increases for the two bear and two bull markets in this century. It reveals how wide they vary between rising and falling price trends. Rather than one day out of twenty, bull markets have them once every 14 days, whereas they happen just once in seven weeks when prices are falling.

Further, losses are more frequent -or gains occur less often- on the days following these small increases. The two lower data sets of the tables reveal that this disparity is wider during bear markets than when prices are trending up.

These characteristics hold also for negative changes of the same magnitude, that is between zero and minus .1 percent.

Accordingly, we suggest that such small positive and negative daily fluctuations prove useful in projecting the market’s future: their frequency implies prices trending higher, while their scarcity means falling values.

DJIA                  .06 percent

NAS                 -.21 percent

S&P500          -.10 percent

The unusual continues, and now results in the first ever close of the S&P500 rising three straight days with the NASDAQ increasing twice while the DJIA records its second decline in a row. We repeat, as so often in recent days, statistical projections are useless without a significant sample of repeats.

We turn instead to comparing the current market and its recovery from the last low in 2009 and the previous expansion from 2003 to 2007. Our diagram reveals they have many parallels. Yet the current increase is substantially ahead of the earlier recuperation – and this advantage has persisted, with the exception of one major retreat, for the last 750 trading days.

Consider the 14,000 mark: the DJIA reached this just days ago, on February 1. It achieved this target 981 trading days after its 2009 low. That represents a significantly better performance than the earlier recovery; that needed 1,097 days to achieve the same goal.

At this point, the DJIA has moved 213 percent above its 2009 low; that’s a major improvement over the earlier recoup, which managed only 188 percent at its very best before topping out after some 1,154 days of expansion.

All this is very good, yet raises the question: how far will this advantage and strength continue into the future?

DJIA                       -.07 percent

NASDAQ                .06 percent

S&P500                  .07 percent

A second straight advance of the S&P500, combined with a NASDAQ gain and a DJIA loss occurred merely 22 previous times in the more than 15,000 trading days since 1950, the beginning of our data base. Yet today’s close comes just days after its last appearance on the 17^th of last month. All told, this is the fourth occasion since the middle of last year, on July 3 2012.

Whereas this infrequency is bound to catch our attention, its very scarcity precludes projections, let alone provide statistical robustness. Our diagram reveals prices for the S&P500, the NASDAQ and the DJIA advancing on the following day on each of the last three repeats. And while these last gains were modest -ranging from .09 to .62 percent for these three indices- they ran from minus 3.36 to plus 3.88 percent in the previous eight iterations earlier in this century.

In the past, the following day saw increases outnumbering declines two-to-one. Further, this favorable ratio holds both for the current bull market as it does for the three repeats during the 2000/2003 decline.

DJIA -.26 percent

NASDAQ  .33 percent

S&P500             .06 percent