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 29th 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
