USMarketView

The market has been static since scoring a new high on Monday of last week.  Daily changes remain small, even though the NASDAQ crossed an intermediate top. 

Our diagram plots the current S&P500 and the time paths of the last two bull markets, just before and after their highs. It shows that the 2000 and the 2007 cycles share quite similar profile during the first ten days of their declines.  However, the present market does not parallel these contours.

While prices fell quite sharply in the earlier cycles, the past seven days present a somewhat flat profile.  Moreover, though last week’s shallow deep is quite similar to the 2007 down and up kink, it will take more observations to confirm if indeed such a parallel exists.

Keep in mind that the current market is in its 1,104^th day of expansion since the last March 2009 low.  Its span, so far, lies between the 1,059 day bull market of 1996/2000 and the 1,154 day expansion that ended in 2007.

DJIA                   -.01 percent

NASDAQ             .48 percent

S&P500               .04 percent

Whereas all long investors dislike losses, today’s declines contain a positive outlook.   In the past, negative changes this small –the DJIA off  -.24 percent, NASDAQ down -.39 percent, and the S&P500 at -.37 percent- occurred most often in bull markets.  Indeed, no closes of this combination ever took place during the 2007/2009 bear market!  Similarly, only 7 days of the near 800 trading days in the 2000/2003 decline closed with this combination.

In contrast, today’s close is the 29^th with losses this small in the more than 1,100 sessions since the 2009 bottom.  The 2003/2007 expansion has an even larger proportion of such minor loss combinations; they amount to 4.1 percent.

Thus today’s loss configuration can be seen as positive, a confirmation that prices will continue their current upward movement.

Nevertheless, take heed that the Fed’s monetary policy has a direct effect on security prices.  Higher interest rates automatically –though with a time delay- correspond to lower stock prices.  Our diagram reveals their parallel paths over the last six weeks.

DJIA                      -.24 percent

NASDAQ             -.39 percent

S&P500               -.37 percent

The NASDAQ moved higher for the third straight session while the DJIA and the S&P500 edged slightly higher for the second day in a row.  This continues the series of rare patterns seen this month.  Today’s combination is just the 13^th repeat since the beginning of 1996. 

The S&P500’s gain of a mere .08 percent is the eleventh consecutive day with advances smaller than .10 percent.  Yet this is a welcome statistic because bull markets and small daily increases go hand-in-hand.

So far in this expansion, these smaller than .10 percent daily gains account for six percent of all closes.  Similarly, in the previous, 2003/2007 bull market they amounted to 6.9 percent.  By contrast, these occurred half as often, accounting for only 3.0 and 3.4 percent, in the last two bear markets.

While that seems counter intuitive, it nevertheless is true: small daily changes distinguish good times from market declines.

Today’s diagram focuses on the S&P500’s gain of .08 percent, showing their distribution over the last three price cycles.  Based on this history, chances for gains and losses are about equal.

DJIA                     .02 percent

NASDAQ              .22 percent

S&P500                .08 percent

Prices moved up again, scoring the 14^th   daily advance this month, and with four more trading days to go, this July could set an ‘Up-Day’ record.  In June, the S&P500 had only ten positive closes, and last year’s July saw just eight up days.

Further, the July ‘Up-Day’ average for this as well as the two previous expansions since 1996, averages less than twelve days.

Today’s pattern of two positive days for the NASDAQ while the DJIA and the S&P500 moved higher after yesterday’s losses, has almost 50 previous occurrences.  These, as shown on the diagram, are quite evenly distributed over good and bad times.

As for the following day, this current bull market has moved higher five out of six times.  That comes as a sharp contrast to, and is substantially better than, the two previous expansions, when losing days outnumbered gains.

DJIA                     .09 percent

NASDAQ              .71 percent

S&P500                 .26 percent

Only 16 other days closed with the same pattern as today’s combination: DJIA – down one day, NASDAQ – up one day, S&P500 – down two days in a row.  Further, there have been just nine over the last three cycles – since 1996.

Yesterday’s pattern count was a little larger –55 overall with 23 since 1996- but the day before had only 10 repeats, and the pattern the day-before-that had been seen just 8 times.

We call these unusually rare counts to your attention, and continue to focus our analysis on this singularity, even though our analysis has found no relationship between these infrequent patterns and price changes.

Our diagram locating the nine days with today’s pattern; it reveals eight occurring during expansions.  Only one happened when prices were heading down.

As for tomorrow, in the past gains and losses happened with equal frequency on the following day.

DJIA                   -.16 percent

NASDAQ              .01 percent

S&P500             -.38 percent

The DJIA moved up while the NASDAQ and the S&P500 declined.  This is the 22^nd repeat of this pattern over the last three complete up-and-down cycles.  In one sense, this combination favors expansions since none happened during the 2007/2009 contraction.  Yet they accounted for one percent of all closes in the earlier, 2000/2003 bear market. 

On the following day, prices moved up as often as they declined.

DJIA                     .14 percent

NASDAQ              -.59 percent

S&P500               -.19 percent

All three major stock averages opened the week with higher prices.  The S&P500 gain was its fourth plus day in a row, while the DJIA and the NASDAQ moved up after turning down on Friday.  This odd pattern happened just three other times since 1996 – with each occurring just once during the last three bull markets.

Our diagram, locating these days, shows that prices fell on the following days.  The DJIA, for example, lost 1.2 percent in January 2000, .71 percent in August 1994, and 2.0 percent in May 2009.  The S&P500’s history shows similar negatives; it declined 1.0 percent, .8 percent, and 1.9 percent on those days.  Only the NASDAQ had a single positive next day, in 2000.  Nevertheless, on the very next day, January 4, 2000, it dropped 5.6 percent.  On that day, the DJIA declined 3.2 percent while the S&P500 plummeted 3.8 percent.

The future however does not march in lock step with history; yet congruencies like today’s pattern deserve attention.

DJIA                    .01 percent

NASDAQ             .36 percent

S&P500              .20 percent

The S&P500 continues its advance, reaching levels never seen before.  Yet today’s net gain comes to just  .16 percent.  Meanwhile the DJIA slipped into the red and the NASDAQ lost .66 percent.  This result –the S&P500 up three days while the other two averages decline- yields a rare pattern: only seven other sessions since 1996 share this combination.

Our diagram shows five occurring during over two bull markets and two taking place in the 2007/2009 decline.  The numbers next to the gain and loss symbols indicate the percentage changes on the following day. The largest decline, shaving nearly five percent off these indices   happened just before the 2009 bottom; the next deepest loss –about two percent- occurred near the end of the 2007 bull market.

Unfortunately, with price changes on the following day ranging from minus 4.9 percent to plus .2 percent, the record throws doubt on what prices to expect for Monday, the following day.

DJIA                   -.03 percent

NASDAQ              -.66 percent

S&P500                 .16 percent

While both the DADJ and the S&P500 keep soaring to new all-time highs, the current recovery is still not the best on record.  Today, 1,096 days after the 2007 low, the S&P500 stands at 249.7 percent of that bottom.  But in the earlier 1996/2000 cycle, the S&P500 recaptured 254.6 percent of its low.  Still, with the market turning down after day 1,059 of that expansion, we can look forward to seeing the strongest recovery on record!

Our diagram shows the strength of the current bull market, and that until recently that it lagged previous expansions.

Looking at tomorrow, with today’s close the second gain in a row, the record shows that the chance of a further positive day is slightly greater than even.  The proportion of a third successive gain is 56 percent in bull markets; that rate falls to only 36 percent when the market is trending down.

DJIA                      .50 percent

NASDAQ               .04 percent

S&P500                 .50 percent

The Fed’s Chairman took another step back from his first announcement that the central bank planned to reduce the amount of its bond purchases.  He reiterated that there is no definite plan to cut back its open market operations, saying, “I emphasize that, because our asset purchases depend on economic and financial developments, they are by no means on a preset course.”

Prices did not change much today, with the three main market averages gaining small fractions.  Nevertheless, it was an up day after yesterday’s decline.  This +1/-1 pattern occurs at just about the same rate –six percent- during bear markets and bull markets.

Bull markets tend to have another positive day at slightly greater rate than bear markets.  However, with next day gains at 52.9 percent during expansions and 47.8 percent when prices are declining, the difference is quite slight.

Yet considering only bull markets, the magnitude of losses exceeds the size of next day gains.  Our diagram shows this disparity.  While the largest gain is about 3.5 percent, the deepest loss is near 5 percent.  That this disproportionate negative tilt exists for every level of price change is seen by the fact that the height of the negative bars exceeds those on the plus side.  (The only exception is for very small changes, where the small gains exceed the slightly smaller losses.)

DJIA                       .12 percent

NASDAQ               .32 percent

S&P500                 .28 percent