USMarketView

Headlines celebrating the DJIA’s advance fail to focus on the continuing saga of opposite daily price changes. And tomorrow’s closes will be down from today … if history repeats itself.

Declines outnumber gains 5:2 and 6:2 during the two bear markets of this century. Indeed the loss ratio is 9:6 in the 2003/2007 expansion. Increases exceed declines only in the current, since 2009, bull market, and then the ratio is just four increases to three losses.

Further reason for caution is the frequency of this pattern at turning points. It’s not just the six happening near the 2007 market top. Almost all of these days occur before, at or after prices change direction.

Attentiveness to this history deserves attention, even though this boom is still some hundred trading days short of the last bull market’s life.

DJIA                  .77  percent

NASDAQ          .53  percent

S&P500           .78  percent

Down after Friday’s gain, and down after Wednesday’s gain, means the market has changed direction four times in as many days. Today’s set is the 88^th such pattern in the more than 3,300 sessions in this century.

On the following day, prices moved higher slightly more often  than they declined: the ratio is 49 ups to  38 downs.

Disturbing, however, is the continuation of similarities between the 2000/2003 decline and the current, since March 2009 expansion. Next day prices declined more often than they increased in these two segments.

In the same vein, advances outnumbered declines during the 2003/2007 advance as well as during the 2007/2009 decline.

The widespread enthusiastic optimism spreading through the market and media is quite natural given the strength of the current recovery. Our diagram shows that the S&P500’s prices has more than doubled since its 2009 low, closing at 216 percent of that price. That’s substantially better than the 178 percent achieved at this point during the 2003/2007 expansion.

Given this robust performance at just 1,014 days of growth, while the previous cycle lasted 1,144 days, small wonder we’ve got rising enthusiasm and bullish expectations.

DJIA                -.44  percent

NASDAQ        -.30  percent

S&P500          -.33  percent

Like 221 previous days in this century, prices moved higher after yesterday’s losses. These gains, though, fell short of restoring all of those losses. Today’s analysis, however, focuses on the distribution of these days over the four distinct cyclical phases since the beginning of 2000.

The proportion of these days in the first down wave was 4.6 percent; the following up-market had 8.6 percent. The share in the next, 2007/2009 decline rose to 9.3 percent of all days, while the count in the current bull market is down to 5.4 percent.

This summary reveals an unusual parallel, in that the proportion in the first decline is similar to the proportion in   the current increase.  And, that the ratio in the early increase is close to the share in the second decline.   

Further, this pairing is not isolated. Today, as in the last three previous closes, frequencies in the first decline are near to those in the current increase.  

This creates a possible concern, in that we have used the parallels between proportions in the 2003/2007 advance and in the current bull market to infer that prices will continue to move higher.

Thus consistency and logic demand that similarities of the present market with those of the 2000/2003 decline requires projecting  declines for the future.

We continue to monitor and report on this possible problem.

DJIA                .51  percent

NASDAQ       .70  percent

S&P500         .72  percent

The market closed lower but losses were smaller than their average for this pattern. Only 11 other days in this century have this pattern of a decline following two gains by the DJIA but when the NASDAQ and the S&P500 moved up only one day.

Our diagram reveals this pattern happens without any consistency for rising or falling markets,  but that most of these days occurred during the 2000/2003 decline and also since the beginning of the current bull market.

History reveals a mixed outlook  for tomorrow, with prices declining a bit more often than rising.

DJIA                -.62  percent

NASDAQ        -.98  percent

S&P500         -.83  percent

It’s the distribution rather than its rarity that draws our attention to today’s close. Nine of the 26 closes occurred during the 2000/2003 bear market, while another nine happened in the, since March 2009, current bull market.

Further, today’s gains fall short of the average daily advance history of this combination. The DJIA gained .39 percent, whereas its mean for these days is plus 1.21 percent.

Then consider the enigmatic waves of these days: one stretches over the 2000/2003 decline, another lasts over a recovery and continues during the following decline, and the current run of two in 2011, six in 2012, and today’s and last month’s occurrences.

Finally, large percentage changes are the norm for, and dominate, the following days. With these ranging from minus 2.47 percent to plus 1.91 percent for the S&P500, and minus 4.40 percent to plus 2.87 percent for the NASDAQ, we pass on projecting what tomorrow will bring.   

DJIA     .39  percent

NASDAQ    .78  percent

S&P500     .67  percent

1992 and 1996 are the last dates on which the DJIA scored ten gains in a row. A more telling fact is that this index has moved higher 34 times in the 50 trading days of this year. That rate of daily gains -68 percent- is substantially higher than the average of 56 percent positive days during the last two bull markets.

Further, the S&P500 positive days also averaged 68 percent since the beginning of 2012. These figures indicate just how hot this market is.

By contrast, the NASDAQ positive ratio this year is 56 percent; the exact same rate of positive days experienced in the 2003/2007 and 2009/date upswings.

Yet these comparisons do not translate automatically into an overheated DJIA and S&P500 thrust. Consider that the S&P500, at 99.88 percent of its 2007 top remains the laggard of these indices. Similarly, the DJIA though standing at 102.64 percent of its last high, stands far behind the NASDAQ’s achievement of 116.23 percent of that 2007 close.

These two factors yield a plausible explanation of the ongoing spurt. First, a further expansion at current rates contradicts recent history. Second, prices may continue to move at recent levels until the lagging indices, the DJIA and the S&P500, catch up to, and reach the same level of recovery, as the NASDAQ.

DJIA                .58  percent

NASDAQ        .43  percent

S&P500         .56  percent

Up for nine days, the DJIA did not set a record, but the last time this happened was in 1996! The record shows 21 such days, and while these are far from common, note that they occurred many years ago. Ordinarily, the focus of our analysis is from the year 2000 on; today, however, we consider the 1977/1987 period because the DJIA had six runs of nine consecutive up closes.

The most important conclusion of this comparison is that nine DJIA pluses in a row do not mean that prices will decline, or that a strong up trend will end. Our diagram reveals that prices continued to accelerate after four of these six nine-up-days-in-a-row for the DJIA. There was one short pause, when prices declined before resuming their growth.

Further, considering the one case when prices fell significantly after a nine day run, this was just a temporary pause before the market continued its former rate of appreciation.

As for the following day, in the past prices moved higher four times and declined on two of the next days.

For the record, the longest runs between 1950 and 1999, are 19 up days for the NASDAQ, 14 for the S&P500 and 13 continuous advances for the DJIA. In this century, the records are 12 straight increases for the NASDAQ while the DJIA and the S&P500 have 9 each; all of these took place during either the 2003/2007  or the current, since 2009, upswings.

DJIA               .04  percent

NASDAQ       .09  percent

S&P500         .13  percent

Remarkably, the DJIA continues in the plus column; now in its eighth day, this index, as well as the other two we monitor, has never achieved nine straight advances.  For the record, such runs occurred more often between 1950 and 2000. There were 41 in that span but today’s is only the sixth repeat in this century.

Our diagram shows that the following day saw the S&P500 declining four times, increasing just once. The NASDAQ’s record –not shown- is a bit better with three losses and two gains.

Prices were on the rise, not surprisingly, on each of these days.

There is not much to say when the market generates these long strings of increases or decreases. We know these are atypical and that price changes will return to their typical direction changes within days. Yet, commentators, spectators and investors hold their breaths until the sequence ends, then they return to the typical considerations of every day investing.

DJIA               .02  percent

NASDAQ      -.35  percent

S&P500        -.24  percent

It’s been 16 years since the S&P500 moved up for seven successive days. This advance is now in its 77^th day without a significant losing streak. Counting only from the March 2009 market bottom, this is the longest lasting upswing in two years.

Though the focus of attention now is on the S&P500, this index has regained only 99.4 percent of its last, October 2007 top. Similarly, the DJIA got the spotlight last week; it is now at 102 percent of its 2007 high. But the best performer –that has surpassed that top long ago- crossed the 115.7 percent mark today.

Today’s diagram reveals that we are experiencing the fifth major growth period since the 2009 low. It shows that the lengths of market expansions have been decreasing. Though the current gains that started in mid-November have now lasted 77 trading days,  longer than the two previous expansions of 73 and 68 days.

Note that the length of each of the last two, most recent, corrections is shorter than its predecessor. These fell from 101 days at the end of 2011, to 47 and then to 42 days.

DJIA                .32  percent

NASDAQ         .35  percent

S&P500          .26  percent

The DJIA as well as the S&P500 closed higher for the sixth day in a row. This combination is so rare, that today’s is just 7^th in the more than 3,300 trading days since the beginning of 2000.

Yet these closes deserve attention because they happen at market tops. Our diagram shows one just before the market peaked in 2000; it shows another happening near the 2007 top. There are two close to the first correction suffered since the market recovered from its 2009 bottom.

However, while we note two occurrences when prices were poised to shoot higher, it is clear that these are atypical, and further, it would not seem reasonable to infer these as signaling recovery and higher prices.

DJIA                .40  percent

NASDAQ         .36  percent

S&P500          .40  percent