USMarketView

The DJIA and the S&P500 hit historic highs while the NASDAQ closed at its best level in ten years! Thus the market returned to even higher levels, leaving behind the corrections of ten days ago.

Today’s pattern of two gains by the DJIA while the NASDAQ and S&P500 moved higher after Friday’s decline, last occurred in February 2006. That was some 1,511 trading days ago. Further, no repeats have crossed the tape in this expansion, nor in the previous 2007/2009 decline.

Our diagram locating these days also indicates gains and losses on the following days. While gains happened twice as often as losses, this history is not a reliable indicator of tomorrow’s changes. That is because this record refers to changes of long ago.

DJIA               .72 percent

NASDAQ          .85 percent

S&P500           .72 percent

Prices slipped slightly for the NASDAQ and the S&P500 while the DJIA edged higher. This combination occurred just 191 times in the 4,349 trading days of the last four price cycles. Though just 50 happened during the last two declines, their distribution over each up and down cycle is too diverse to allow identification with periods of up and down price changes.

Their incidence is identical at 5.9 percent of all trading days, for example, in both the 2003/2007 decline as in the current expansion. Further, the following day shows just about as many gains as losses over all the price cycles.

Continuing our comparison of recent bull markets, we focus on the 2003/2007 expansion. While it lasted for 1,154 trading days, it had a severe reversal and recovery before its end. The red vertical line in our diagram, at day 1,094, identifies this happening.

The black vertical line shows today’s close, 1,036 days into the current expansion. That means we have almost three months to go before reaching that decline in elapsed time  

Yet, with the steepness of the green line showing that recent gains have accelerated far more rapidly than during the earlier cycle, we might expect the reaction day to occur sooner.  

DJIA                 .08 percent

NASDAQ         -.33 percent

S&P500          -.18 percent   

The S&P500 and the NASDAQ have now extended their positive runs to five consecutive days. This follows the recent 10-day run where the S&P500 changed direction for ten consecutive days, and that in turn came after that index moved higher for ten successive sessions in the middle of March.

So today, we look at the previous two expansions to see how the daily time profiles compare to our current cycle.

The diagram plots all three price lines. The run that ended in March 2000 lasted 1,059 trading days while the later bull cycle topped out in 2007 after 1,154 days. This up-market has now completed 1,038 days.

Comparing these three time profiles, note that our current market is far less volatile than the previous cycles.

Further, both of the earlier expansions suffered significant price dips some 60 to 50 days before their peaks. Then prices soared dramatically, starting 25 days before hitting their ceilings.

With the ongoing expansion does not displaying these fluctuations, we can venture the possibility that its life span will continue. That is unless the current market behaves very differently from the historical norm.

DJIA                   .17 percent

NASDAQ           .62 percent

S&P500             .40 percent

 The S&P500 moved up, but gained just .01 point. The NASDAQ also closed higher, but added just .01 percent.  We have not found any other day ending with this combination. But extending the range, collecting all NASDAQ and S&P500 gains between 0 and .05 percent, the total count rises to 14. However, there are just seven, over the last four price cycles, since 1995.

All of these happened while prices were moving higher; none occurred during the last two bear markets.

This continues the many sessions that have features common to, or only during, bull markets. Therefore, we continue optimistic about the future, since we use such data to infer that price increases will be continuing.

However, the projection is not as bright for the day following this combination. The graph shows that prices on the next day moved up three times and fell the other four days.

DJIA                   -.29 percent

NASDAQ             .01 percent

S&P500             .00  percent

With the three averages adding more than one percent on their third successive positive close, we stand with yesterday’s analysis.

Three plus days occur more frequently when prices are trending up than when the path is down. Indeed, the data in our diagram reveals that bull markets’ three day positive streaks happen near three times the rate of bear markets.

This confirms yesterday’s projection that further price gains lie ahead.

Nevertheless, the statistics of daily gains greater than one percent by all three averages yields a cautionary signal: these have a significant correlation with bear markets. They accounted for 19 and 14 percent of all days during the 2000/2003 and 2007/2009 declines. The frequency was just .7 percent in the 2003/2007 expansion. While they account for 12 percent in present expansion, these large gains are features of bear markets.

Yet unlike the strong next day positive performance during bull markets of two upticks in a row, the record of the days following three straight gains is mixed. Indeed, the S&P500 fell more often than it rose during the 2003/2007 expansion.

This is the third up-three-straight-days this year. The previous close was on April 10; all three averages went on to enjoy a fourth up day. The earlier 2013 occurrence was in the beginning of March; while the DJIA and the S&P500 moved higher the next day, the NASDAQ declined.

DJIA                  1.05 percent

NASDAQ           1.11 percent

S&P500            1.04  percent

Today’s advance, after Friday’s increase, makes this the sixth time in 2013 that these three averages moved higher two days in a row. The last repeat happened on April 10, just eight days ago. The positive string continued on the following day, just as it did on the previous recurrence, March 5. However, prices fell more often than they rose on the following day for the three earlier repetitions.

This pattern happens as often as one day out twenty, on average.  Our diagram reveals an even more frequent occurrence, 1/12 days in the 2003 to 2009 period that covers a bear and a bull market.

Yet the frequency of positive next days shows a definite cyclical configuration. The two bear markets yield gains only 34 and 39 percent of the time, while the three bull eras show following day advances as high 60, 49, and 64 percent.

Thus two advances in a row occur far more often during bull markets than when prices are heading down. Accordingly, this history allows the projection and confirmation that prices will continue their move to higher levels.

DJIA                 .14 percent

NASDAQ          .86  percent

S&P500            .47  percent

Both the NASDAQ and the S&P500 recovered more than their day before declines. While the DJIA advanced, it failed to return to its previous level.

We note today’s wide performance disparity in these three averages: the S&P500’s gain is twelve times that of the DJIA.  This magnitude though is far from unusual and, it can be argued, that large differences indicate higher prices are ahead.

During the last bear market, the largest daily S&P500 to DJIA price change ratio came to 34; it was 24 during the 2000/2003 decline.

In sharp contrast, this number has been over 500 in the current expansion; while much smaller, at just 77 in the 2003/2007 expansion and 261 between 1995 and 2000, these ratios are several times larger than the bear market numbers.

Yet despite these wide disparities, the median S&P500/DJIA daily price change ratio is not very different from one, meaning that most of the time the performance of these indices is near identical.

Nevertheless, the median has grown, rising from 1.01 in the 1995/2000 expansion to 1.11 since the last bottom in March 2009.

Bottom line, though, the huge difference between the S&P500 and DJIA gains is consistent with changes that have occurred in the past when prices were moving higher.

DJIA                 .07  percent

NASDAQ         1.25  percent

S&P500             .88  percent

While the decline continued on to its second day, the drop was less severe than the day before. The DJIA’s fall equaled just 3/5^th, the S&P500 proportion was 71 percent and even the deeper NASDAQ decrease came to only 84 percent of the previous decline.

Two down days in a row have occurred 265 times over the past five price cycles. They are slightly more common in bull markets -6.2 percent- than the 5.8 percent rate during declines.

That allows some relief, at least, from the automatic fear common at market highs that prices are bound to retreat.

A further positive interpretation arises from the fact that today’s losses approximate the median losses experienced during bull markets. For example, the median S&P500 decline on the second loss in a row comes to -.73 percent during expansions. That is quite close to today’s minus -.67 percent; which in turn is far smaller than the -1.38 percent median S&P500 loss during the last two bear markets.

The same conclusions apply to the DJIA and the NASDAQ. Today’s DJIA loss of    -.56 percent is not only smaller than the -.66 percent median bull market loss but less than half of the -1.15 percent median bear market loss.

The NASDAQ proportions are -1.20 percent today, -1.09 percent bull market and       -1.20 percent bear market median declines.

These comparisons allow the suggestion that the market remains in an upward bias mode.

The outlook for tomorrow is not as favorable. In the past advances happened about as often as declines in good times as well as when prices were heading down.

DJIA                 -.56  percent

NASDAQ         -1.20  percent

S&P500            -.67  percent

Prices dropped sharply, with the S&P500 giving back yesterday’s entire gain. The NASDAQ loss was even deeper, giving back -1.84 percent after adding 1.50 percent the day before.

At the closing bell, the DJIA was off  -.94 percent, the NASDAQ fell -1.84 percent while the S&P500 lost -1.43 percent. While deep, these declines are not that rare. The last five up-and-down price cycles  have seen 315 days with losses this deep and deeper,  amounting to about 10 percent, or one of every 10 trading days.

These deep losses occurred far more often during price declines than when prices were trending up. They amounted to 20 percent of all closes during the 2007/2009 decline, and 14 percent when prices fell between 2000 and 2003.

In contrast, such losses came to 2.4 percent in the 2003/2007 bull market and 4.9 percent in the previous recovery. Indeed, while that rate has risen to almost 6 percent since the last, 2009 bottom, it nevertheless remains far below the double-digit numbers experienced during the previous market declines.

Though analysts are refreshing fears of an impending market top –and these are logical with prices at all-time highs- so far, at least, this record remains consistent with the profile of a bull market.

As for tomorrow, in the past, prices have risen the day following losses as deep as today’s more often than they declined. Further, these gains happened even during bear markets.

One final thought: earlier we had a stream of up and down days; these continued for more than two weeks but prices changes were quite small. Now, over the past three days, the market has revealed moves that could parallel those previous seesaw days but with substantial price instability.   

DJIA                 -.94  percent

NASDAQ         -1.84  percent

S&P500           -1.43  percent

Prices recovered some 60 percent of their day before losses, and seemingly restored stability after the year’s largest sell off . . . and the vicious Boston Marathon bombing.

We focus on three features

Three features of today’s market action indicate strength, demonstrating that buyers are establishing long positions, rather than joining a down heading escalator.

First, consider that today is only one of  33 positive closes following a S&P500 loss deeper than (yesterday’s)  -2.30 percent . . . in the 3,300 some trading days since the beginning of the 1996 expansion.

Second,  today’s  gain recovery rate of yesterday’s loss is 62 percent. Only nine days  that managed to achieve that high a recapture level.

Third, the recovery rate of the DJIA is 60.3 percent and the NASDAQ’s gain of 63 percent are similar

Finally, consider the diagram that locates these days. Five of these events occurred near bottoms, before prices rebounded, whereas two happened prior to substantial declines. Yet today’s event, up there at the end of a long surge, does seem vulnerable.

DJIA                1.08  percent

NASDAQ          1.50  percent

S&P500           1.43  percent