USMarketView

Driving fast, celebrating the DJIA’s extended run above the 14,000 peak, could lead to a pile up, according to the rear view mirror. All told, only 18 days closed above 14,000 – that includes these last six trading days. Those other 12 closes all happened just before a sharp price drop.

Today is the first time ever that the DJIA posted four straight advances while closing above 14,000.

Of the 18 DJIA closes above 14,000 – only 7 resulted in higher prices on the following day. And four of those days just happened since the end of last month.

Four of those 18 days occurred at the beginning of the 2007/2009 drop – so these should not count among the good news days.

Consider also the pattern count: five gains in a row for the DJIA and the S&P500 while the NASDAQ moved higher following yesterday’s decline. This combination has happened 49 previous times, with all but three during the 2003/2007 and since the last 2009 bottom.  Prices moved higher on 46 percent of the following days.

Yes, that last count is a piece of good news: today’s pattern meant bull market in the past.

DJIA                .23  percent

NASDAQ        .30  percent

S&P500          .18  percent

The TV news reports of a ‘second day of record DJIA high’ glossed over the small gain of a mere .30 percent.  They also missed two significant facts: DJIA gains this small amount to only 15 percent of all positive changes in this century, but these occur 80 percent of the time when the market is on the rise.

Today’s pattern -four successive advances by the DJIA and the S&P500 while the NASDAQ declines- happened just eight other times since January 2000. The diagram reveals two just before the market top of 2007. There is another, occurrence near the earlier 2000 high.

The last repeat happened on August 2012, then the DJIA fell on the following day.

The DJIA as well as the NASDAQ and the S&P500 fell on the next day more often than advancing, yet only eight observations over more than 3,000 trading days make this a fact but not a projection.

We report, with the same reservation, that five of these eight days happened while the market was moving higher.

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DJIA                       .30    percent

NASDAQ              -.05   percent

S&P500                  .11   percent

On the third straight up day, the DJIA closed higher than its previous top, just before the market turned down in October 2007. Three gains in a row have occurred 74 previous times in this century. Their happenings are very bear/bull market related – they appear twice as often when the trend of prices is up. Our diagram shows their clustering toward, and at, the end of the 2007 growth period.

Further, prices fall on the following day during bull markets, whereas they tend to move higher when prices are moving down.

Accordingly, celebrating the good news of the new DJIA high deserves some caution, because history reveals a future of decline rather than further growth.

DJIA                .89    percent

NASDAQ       1.32    percent

S&P500          .96    percent

Exactly 1,000 trading ago stock prices hit their last bottom on March 9, 2009. Curiously, the recovery before this – from the low point of March 11, 2003 – also reached 1,000 trading days on a March day; it was the first day of March 2007.

Coincidence? Perhaps, but consider some parallels between then and now; these may be useful when wondering what to do with financial investments, now that stock prices are on the verge of beating previous all-time high.

Indeed, our current recovery is far beyond that earlier one: the S&P500 now stands at 203 percent of its bottom of 1,000 days ago. That’s a major improvement over the 157 percent achieved in 2007. That’s wonderful of course, but also ground for caution.

Has this market already reached its top or are prices going far higher? That’s the essential, obvious question. Our suggestion is to look at the number 154.

That was the number of trading days left in the 2003/2007 bull market after passing the 1,000-day mark since surging from its 2003 low. That happened on October 9, 2007. We focus our diagram of the S&P500 there. If we project the current resurgence to last as long, it will top out around the beginning of October 2013.

If that happens –two recent bull markets, each lasting 1,154 days and ending in early October-  will that be coincidence, or demonstrate the existence of some unknown force affecting the nation’s financial markets?

Here’s another happenstance revealing parallels between then and now. In 2007, the S&P500 hit a temporary ceiling not at, but shortly before, the 1,000-day recovery point. That occurred seven days earlier, at recovery day 993.

How similar, how parallel to now – when our last high happened this past February 19, some eight trading days ago, at recovery day 992!

DJIA                .25 percent

NASDAQ         .30 percent

S&P500           .23 percent

Small declines ended the month – and happened the day before the legislated draconian sequester is to take effect. Perhaps the market consensus is ‘that’s no big deal’ though it nevertheless just flirted with highs never seen before. We’ll have to wait before see if this fiscal brake on the economy will become a non-event.

Today’s price profile leaves several choices of analysis. A simple decline of the DJIA, the NASDAQ and the S&P500 is common, with near 500 previous happenings in the past 13 years. It is rarer after two successive advances; that count is 87. We focus on one further step into the past – considering the 34 cases when this occurred after an earlier loss.

The diagram reveals that prices on the following day show no consistency of direction. Though further losses occurred on the last four repeats of this pattern. Yet a similar string of replications during the 2003/2007 expansion led to a sequence of gains.

Finally, losses continued on the next day after the last time we had this pattern. But this may not be a meaningful forecaster since prices fell more than two percent then, much further than today’s minor correction.

On sequences like these, discretion wins out over projection.

DJIA                -.15 percent

NASDAQ        -.07 percent

S&P500          -.09 percent