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Prices continue on hold as the market changed direction for the third straight day. This continuing instability, at day 1,063 of the current expansion, is a good sign.  First, because the 2000 market topped out at day 1,059, and though the 2007 peak happened at day 1,154, risk avoidance dictates vigilance.

Second, because steady gains preceded the previous declines.  In 2000, there were three and four day positive runs before prices drifted down.  The 2007 highest price saw sequences of two, three, and five day advances.

Our diagram comparing these three expansions reveals today having more similarity with the 2007 than the 2000 profile of the S&P500.  If this parallel continues, expectations of a longer bull market are reasonable.

Note a developing parallel with 2007: then price declines were shallow and remained near their peak for another 100 trading days.  That is vastly different from the precipitous drop in 2000.

Note though the one similarity in the two earlier expansions: both remained in a narrow trading range for a while, at this stage, before taking two different directions.

DJIA                .14 percent

NASDAQ         .69 percent

S&P500           .27 percent

Losses just about offsetting yesterday’s gains happened again, continuing the market’s lack of direction for the last seven trading days.  This pause is happening despite the DJIA’s new record high earlier this week.

This one day up following one day down pattern, is the third this month; it is the 13^th this year.  There were just seven in 2012 and nine in 2011.

Yet, with the first two years of this recovery having more than 15 of these seeming lack of direction pauses, such holding patterns could indicate substantial appreciation.

DJIA               -.69 percent

NASDAQ         -.61 percent

S&P500          -.70 percent

The DJIA close of 15,409.39 set a new, record high but the NASDAQ as well as the S&P500 show recovery rates in this expansion.  The DJIA now stands at 135 percent of its 2009 low, which is not as good as the S&P500’s recapture rate of 145 percent.  The NASDAQ did better yet, ending the day 175 percent greater than on March 9, 2009.

Yet the DJIA comes off better when comparing current values to their previous, 2007 highs.  Our diagram reveals the DJIA at 108.8 percent of its October 2007 close.  The S&P500 lags that rate, recovering only 106.1 of the 2007 high.

The NASDAQ again beats both: so far, it has regained 124.4 percent of its 2007 top.

Another fact overlooked by the DJIA’s good news is that at the end of the day, both the NASDAQ and the S&P500 stand below their closes of four days ago.

Good news from the housing sector added to the high spirits of business commentators.  Real estate prices now stand near 11 percent of their year ago levels; in addition, housing starts are moving higher.  Then consumer confidence is increasing and finally, the Fed seems ready to continue, rather than stopping, as was announced last week, its purchases of debts to support the economy . . . and of course as a result, to buttress the prices of all financial securities.

DJIA           .69 percent

NASDAQ     .86 percent

S&P500       .63 percent

The S&P500 gained 8.27 percent since April 18 when the latest rally began.  That torrid pace of the last 23 days has been beat just 116 times in the 3,364 trading days since January 2000.

The NASDAQ was even hotter, adding 10.61 percent in the past 23 days, though the DJIA lagged these gains, increasing ‘only’ 5.85 percent since this latest rally began in mid-April.

For those doubting the rarity of this acceleration, consider today’s diagram.  Showing the S&P500’s recovery from the March 2009 low, we see only 61 occasions during which the gain rate exceeded 8.27 percent.

Yet, almost half of these –some 26- came on the heels of the market’s recovery from the previous bear market. This frequency fell to 12 in the following year, and then to 11.  The last happenings, two in January 2012, were 331 trading days ago!

So let us celebrate these latest gains but not forget their infrequency while preparing for the market’s return to a more normal pace.

And more normal does not mean retreat or decay, but average. That, for the last three bull markets  amounts to 1.08 percent for the S&P500; for the DJIA and the NASDAQ those average good time  23 day advances  are 1.49 and 2.50 percent.  

DJIA           .06 percent

NASDAQ     -.01 percent

S&P500      -.06 percent

By Max Moszer.

Moszer, founder and publisher of Virginia Economic Impact and of the telephone survey, The Virginia Consumer, has also been editor of Business Economics, the journal of the National Association of Business Economists. Currently Professor Emeritus of Economics at Virginia Commonwealth University, Moszer received his Ph. D. from the University of Pennsylvania after a career in the business world.

Today’s losses were small but their minuteness and infrequency should not be a source of comfort.  With our diagram showing these six happenings near the last two market tops, caution seems both a reasonable and a conservative reaction.

That all these closes took place while prices were trending higher is an additional oddity.

Note that looking only at the size of today’s changes misses their crucial feature, their nearness to the end of bull rallies. For prices had strong recoveries on two following days.  The S&P500 gained 1.01 percent and then 1.84 percent before the 2000 top.

Prices on the following day reacted differently though during the 2003-2007 expansion.  They fell on three of the four repeats, with the last one happening on August 14, 2007.  That was less than two months before prices turned down on October 9, 2007.

Though this history is fateful, note that the actual downturns dates occurring quite a bit after the events described today.  

DJIA            -.08 percent

NASDAQ     -.11 percent

S&P500       -.29 percent

It’s now five days that prices changed direction from the day before – that happened just 20 other times since 1996, in the near 4,000 trading days of the last four bear and bull markets.

Yet the very last occurrence happened on April 8, just 32 trading days ago.

Prices changed direction again on April 9, the following session, and they continued higher for the next three days.

We find no correlation between these seesaws and market direction; they happen infrequently and both when prices are rising and when prices are on the decline.  In total, they represent less than .01 percent of all trading days.

 Yet note that half of these happen just before and just after the market changes direction. One stands before the 2000 top, another before the following bottom of 2003. Two happened just before the 2007 high and three shortly thereafter. Then consider the 2009 low: two happenings before and one after. Then the last happening was in early April just prior to that earlier correction,.

Today, this bull market’s 1,057th day is two days short of the 1996-2000 expansion, though it is far short of the 1,154 days of the 2003-2007 growth period.

DJIA              -.52 percent

NASDAQ       -1.11 percent

S&P500        -.83 percent

Though prices only edged higher, the S&P500 added 1.2 percent since this the start of this seesaw on May 16. But the market’s last up-down series of 13 successive direction changes, between March 20 and April 8, increased prices by just .3 percent.

The diagram reveals 46 strings of up-down-up-down days over the last four price cycles. Note how these cluster at turning points, not just when the trend changes from bull to bear, but also while the market continues in the same direction.

Today’s up-after down-after up-after down is the eleventh since March 2009, accounting for one percent of all trading days since that low. Their frequency, however, does not systematically generate identical changes in the trend of prices. Their last occurrence at the end of March paused, but did not halt, the ongoing record-breaking rally.

Yet frequent repeats of this sequence precipitated the drop and the end of the bull market in 2007; it happened again at the 2000 top.

These also anticipated the end of the 2009 bear market.

While declines on the following day outnumber increases 3:2, gains exceed losses during the last three expansions.

Thus tomorrow’s prices should move higher, and if they do, that will signal a confirmation of further near term value growth.

DJIA                .34 percent

NASDAQ          .16 percent

S&P500            .17 percent

Investors face unfamiliar territory: today’s decline, after Friday’s rise, that followed Thursday’s decline has repeated only 64 other times in this century!

Our diagram shows these happenings distributed almost equally over the last five price cycles. Though the 2007-2009 decline has the greatest frequency –some 4.5 percent- the previous 2003-2007 bull market is in second place with 3.2 percent.

While these data do not allow inferences about the current market, they do show that prices increase often on the following day. Indeed, they went up 63 percent of the time even during the 2007-2009 bear market.

A word of caution: remember that today is the 1,055^th day of the current bull market. The 1996-2000 expansion ended after 1,059 trading days.

DJIA             -.12 percent

NASDAQ        -.07 percent

S&P500          -.07 percent

Is this bull market about to top-out? That concern, not unsurprising when prices spurt as in recent days, becomes even more important because we are just days away from the 1,059 day mark when a previous, the 1996-2000 market, collapsed.

Further, today’s S&P500 advance of 1.1 percent is its third greater-than-one-percent gain this month; there were only 29 in all of last year.

Our diagram reveals the close parallels of the last three bull markets. Note the steep spurts just before these expansions hit their tops in 2000 and in 2007.

The good news though is that the current growth spurt, while sharp, is not as steep as at the end of 2000 cycle. It resembles more nearly the longer and milder expansion toward the end of the 2007 top. That is promising, since if significant historical repeats exist, it implies that we are more likely to have a lengthier expansion, nearer 1,154 rather than 1,059 days.

Yet the comparison of the frequency of S&P500 daily increases larger than one percent shows a greater similarity between the current expansion and the 2000 top, than with the 2007 story. Whereas the greater-than-one-percent gains come 17 percent of all closes since the 2009 bottom, they are almost equal to the 18 percent 1996-2000 expansion. That’s is near double the 9 percent rate that happened in the longer, 1,154 day bull market between 2003 and 2007

DJIA             .80 percent

NASDAQ       .97 percent

S&P500       1.03 percent

What are the chances for a further decline tomorrow after today’s losses?  Are they different during price expansions, like the current bull market?

So far this year there have been 16 such cycles, and the news for the following day is good:  11 increases and only 5 further losses for the DJIA and the NASDAQ. The S&P500’s record is a bit better, with 12 gains and 4 declines,

The statistics for the last three bull markets and two bear markets reveal almost no difference in the direction of next day prices during periods of rising and falling prices.

Advances on the following day occurred between 52 and 63 percent in the last three expansions; they ran between 47 and 58 percent during the two earlier price declines.

That means, given the ongoing bull market, a good chance for a recovery and higher prices tomorrow.

DJIA             -.28 percent

NASDAQ        -.18 percent

S&P500         -.50 percent