USMarketView

 

The many recent down signals and negative sessions, we see the first sign of higher prices ahead.  Today’s decline, following three gains, that came after a single decline, matches a pattern that in the past occurred  more often in bull than in bear markets.

Our diagram identifies these closes with a green triangle or a red circle.  Green when prices increased the next day and red when they declined.

These up and down days happened far more often during rising markets than when prices were heading down.  These accounted for 2.3 percent, 2.4 percent, and 2.5 percent of all days in the last three bull markets; they occurred just 1.5 percent and 2.3 percent during declines.

Yes, the differences may not seem large, but they, nevertheless exist.   Moreover, given the many negative sessions and adverse expectations, we hasten to present this indication of better times ahead.

 

 

DJIA                  -.76 percent

NASDAQ             .00 percent

S&P500              -.43  percent

 

 

 

 

 

 

 

The S&P500 added 2.55 percent since Tuesday, scoring the biggest three-day advance since January!  There is more good news:  this is the first three-day run up since April. Last, but not least, the interest rate of the 10 Year Treasury declined to 2.21 percent – a decline of 14 percent since yesterday.

That the market gains resulted from three successive plus sessions is another favorable development, since this pattern occurs more often when prices are trending up than when the trend is down.  Our diagram shows these three day up streaks happening more than two percent of the time in bull markets, just about twice the rate when price3s are heading down.

The outlook for tomorrow continues favorable but with a caution.  While positive days outnumbered declines 17:12 in this, since the 2009 bottom, expansion, they came to only 41 percent in the 2003/2007 bull market.  

In April, the last time prices rose three days in a row, the market moved higher on the following day.

 

 

DJIA                   .77 percent

NASDAQ           .76 percent

S&P500             .62  percent

 

 

 

 

 

Increases near one percent closed the second consecutive advance, as the yield on the Ten Year Treasury Bond waned a bit. Some analysts credited the day’s results to the economic news of a slight markdown; this led to expectations that the Fed might postpone tightening the money reigns.

Our diagram shows today’s pattern of two gains, following a loss, that came after an increase, that is +2/-1/+1, is almost evenly distributed over price expansions and contractions.

Gains and losses on the following day fail to reveal any consistency over bull and bear markets.  While increases outnumber declines in the current and the 1996/2000 phases, losses occurred three times as often as advances during  2003/2007.

 

DJIA            1.02 percent

NASDAQ      .85 percent

S&P500        .96 percent

 

 

 

 

 

 

 

 

 

The NASDAQ snapping out of its four-day losing streak, added .82 percent, the DJIA and the S&P500 also advanced, leaving behind their losses the day before.  This seesaw of up-and-down is the 149^th in the 1,080 trading days of the current expansion, accounting for 14 percent of the total.  Yet that rate lags the 20 percent rate of the 2007/2009 bear market as well as the 18 percent of the previous, 2007/2009, expansion.

Nevertheless, this daily volatility exceeds by far the up-and-down oscillations between 1950 and 1995: that earlier time saw these daily direction changes just 5 percent of the time.

Though prices moved higher today, they still lag substantially the closing prices of last week and last month.  Such drastic declines motivated the presidents of two regional Federal Reserve Banks to declare that the Fed’s change in policy –of higher future interest rate- is not imminent.

That reassurance, though, flies in the face of reality: the Ten Year Treasury rate has jumped from 2 percent to 2.59 percent since the beginning of June.

Today’s diagram reveals the substantial impact of this escalation on stock prices.  It shows, moreover, the close parallel between the S&P500 and the daily change in the value of the Ten Year Treasury paper.  (Note that the value, or market price, of that debt is the inverse of its interest rate.)

Yet there is favorable news for stock prices: if this, since the beginning of the month, relationship, and lag persists, expect to see a stock market rally, as the S&P500 follows a moderation in the Fed’s interest rate escalation.

 

DJIA            .69 percent

NASDAQ      .82 percent

S&P500        .95 percent

 

 

 

 

 

The NASDAQ fell for the fourth straight session – a rare losing streak, having just 116 repeats in the more than 4,300 trading days of these last four up and down price cycles.  The good news, though, is that the most of these four-day losing streaks happened during bear markets.  These amounted to four percent of all trading days during the 2000/2003 decline; they accounted for 2.3 percent in the following 2003/2007 bull advance.

Today’s close marks the 25^th repeat of four in a row NASDAQ declines in this expansion – since the last bottom   in 2009.  The outlook for tomorrow is favorable:  the NASDAQ moved higher on 18 of the next days, declining just 7 times so far in this expansion.

The DJIA and the S&P500 declined, after Friday’s up tick; earlier last week these averages had an up day that followed two losing days. This configuration has only three forerunners, one of which happened just days ago, on June 14.

Further, with all taking place during bull markets, as the diagram shows, we see the first suggestion in quite some time for rising prices in the future.

 

DJIA            -.94 percent

NASDAQ     -1.09 percent

S&P500       -1.24 percent

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Prices stabilized following huge losses over the last two days: the DJIA and the S&P500 each add a quarter of one percent while the NASDAQ, down for the third straight session, gave up .22 percent, a trifling amount.  This snapback is the typical market reaction –smallish upticks- that follows losses deeper than two percent on the preceding day.  days a more than two percent loss the day before.  The S&P500 median change, for example, is .38 percent after such significant reversals.

Concern over the level of interest rates continues to hang over the market – and justly so, with the focus on ‘how high will the Fed let interest rise.’  Our diagram reveals the close relationship between interest rates and capital values.  It updates our post of June 12 that showed the close correlation between the S&P500 and the value of the Ten Year Treasury obligation.

(The interest rate on bonds is the inverse of its capital value; when interest rates rise, the value, or price, of the bond declines.  Since stocks are a form of capital value, their price follows the same reverse relationship.)

The diagram shows just how narrowly the S&P500 tracks the Ten Year Treasury value of ten days earlier.  Given this lag and the fact of rising interest rates over the last ten days, expectations of further market declines seem reasonable.

 

 

 

DJIA             .28 percent

NASDAQ     -.22 percent

S&P500        .27 percent

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Prices off more than two percent today suffered their worst day since September 2011.  Only 91 other days –in the 4,387 trading sessions since January 1996 – had deeper losses.

Yet there is hope for tomorrow: gains outnumbered losses on the following day.  Nearly 64 percent of the next days closed higher.

However in 2011, a series of major reversals lasted six days.  The diagram highlights these, revealing their occurrence shortly before this current bull market started to surge.

Today’s setback, the sixth losing session in the last nine days, should be attributed to the continuing focus on the Fed’s announcement of moderation in its debt purchases.  Indeed, the yield on the Ten Year Treasuries shot up from 2.31 percent yesterday to 2.42 percent today – that rate of change comes to 4.8 percent, double the losses that hit the stock market today.

 

DJIA            -2.34 percent

NASDAQ      -2.28 percent

S&P500        -2.50 percent

 

 

 

 

 

President Obama tipped Fed Chairman Bernanke’s hand earlier this week, declaring that Bernanke has stayed longer in that job than was expected.  Not surprisingly, the Fed announced today in effect that interest rates could rise this year. 

Much of this turmoil results from fears that the Fed’s low interest rate policy will stimulate a restart of inflation.  Never mind the resurgence of the depressed housing market.  The result of cheaper mortgage money derived directly from the current, Fed’s contrived low interest rates.

Never mind also that rising housing starts was the essential boost that restored the economy in just about every recession since the 1950’s.

Discomfort with low interest rates is just built into the profile of the financial community.  Thus high unemployment, which by definition means lost output, lost income -and lower self-esteem- for the society, becomes less important than sturdy interest rates.

The contrast is revealing: unemployed workers’ output is lost forever whereas higher interest rates change only financial arrangements.  Yet that is where sentiment wants to go.

Be prepared, then, for the automatic repercussion on financial values: higher interest rates translate into lower capital values . . . and of course this includes pressure on stock prices.

So far, the value of the 10 year Treasury fell 7.6 percent since the beginning of June while the S&P500 fared better, losing .7 percent.

 

DJIA             -1.35 percent

NASDAQ      -1.12 percent

S&P500       -1.39 percent

 

 

 

 

Though recent Gains returned the market nearly to last month’s record highs, that earlier strength has weakened.  While an optimistic outlook   would propose that financial markets have surges, pauses and even retreats, we note that stock prices also move sidewise before dropping into bear territory.

Our diagram confirms this oblique nature; it shows the near perfect match of our recent decline with the profiles of the 2000 and 2007 downturns.  Certainly it runs in tandem over the first ten, even fifteen, days of those market profiles.

 

DJIA            91 percent

NASDAQ       .87 percent

S&P500         .78 percent

 

 

 

For the eighth time this year prices moved up, after a losing day, that followed an up day, that came after a down day.  In short, +1/-1/+1/-1     describes this chain.

Prices continued higher on just three of the following days; they fell on four following days.

These ongoing direction changes surely indicate investor uncertainty. Such doubts are natural after strong price surges that, in addition, posted new record highs.

Further, the continuing ambiguity of the Fed’s interest rate intentions clouds the future even more.  Today’s Yahoo Finance, for example, calls attention to the upcoming Fed meeting on Wednesday, at which future interest policy surely will be on the agenda.

Continuing the earlier analysis of market changes, we add to that description that a three-day positive run preceded this current up and down chain.  That happened just nine previous times over these last four up-and-down price cycles.  Today’s diagram shows all but one happening in bull markets.

 

DJIA            .73 percent

NASDAQ       .83 percent

S&P500         .76 percent