USMarketView

Another day of minor losses ended a weak August – the market ended the month with prices lower than on July 31.

Today’s losses result in a pattern of a single decline after the advances of the previous two sessions.  This combination occurred just 31 other times over the last five price cycles.

Our diagram shows these days happening somewhat more often during expansions than when prices are trending down.  Further, the following days show a distinct difference between bull and bear markets:  prices increased more often than they declined when the market was heading higher.

DJIA             -.21 percent

NASDAQ       -.84 percent 

S&P500       -.32 percent

While the NASDAQ rose .75 percent, the DJIA and the S&P500 added only smaller fractions.  Today’s pattern -two straight positive days following two consecutive declines- has occurred less than fifty times during the 4,436 trading days since the beginning of 1996.

Given their almost equal distribution over the last three bull markets and two declines, we suggest that this record leaves little to be said about the future direction of the current market.

Today’s pattern occurred last at the beginning of June, when the market posted its third largest advance of 2013.  However, a mix of small gains and minor losses followed on the next day.

But the event previous to that, on April 22, yielded one percent gains on the following day.   

DJIA             .11 percent

NASDAQ      .75 percent 

S&P500        .20 percent

Prices closed higher, ending their two day decline.  Yet the outlook for tomorrow favors another negative day, since the record shows that, in the past, there were 20 declines against 16 advances for today’s pattern.

The current interruption of recent gains prompts a look at the last two bull markets, to compare the profile of their peaks to the current high of August 2.  On that day, the S&P500 closed at 1709.67 – and prices have been in retreat since then.

The first vertical line at day zero indicates the highs of the 2003 and 2007 prices; we set our current top on that same time line.  That occurred 18 trading days ago.

It is easy to see that the 2013 record surpasses the others, though the profile of prices is quite similar.  While current prices remain below their high, note that at today’s close they remain at 95.6 percent of that August 2 record.

That performance outranks the previous bull markets: they fell to 92.6 percent of their highest level on the 18^th trading day after their tops.

That good news must be tempered though by the similarity of these price profiles and the fact that prices never recovered –but continued to fall- in the two earlier expansions.

DJIA              .33 percent

NASDAQ       .41 percent 

S&P500        .27 percent

The NASDAQ dropped more than two percent while the S&P500 fell 1.59 percent and the DJIA lost somewhat more than minus one percent.  Today’s pattern  -two losses following two straight gains- has repeated 38 times since 1996.  Nine of these happened this year.  The last just days ago, on August 16 – that turned into a further decline in the next session.  Earlier, in June, two other such days turned into gains on the next day.

Today’s diagram shows the distribution of these ‘two down after two up days’  over the last bear and bull cycles.  There is no immediate association with expansions or contractions.  Nevertheless note that the last,    2007/2009, bear market has the highest frequency.  Yet the second largest rate happened during the 2003/2007 bull market.

Price changes on the following day show the same lack of expansion or contraction consistency.  Whereas the current expansion phase’s history reveals eight next day advances and just one decline, losses dominate both the 2000/2003 and 2007/2009 bull phases.

Note: today’s declines are the deepest one day losses since April and June.

DJIA             -1.14 percent

NASDAQ      -2.16 percent 

S&P500       -1.59 percent

Today’s losses mark the fourth –up then down- price change in the last five days.  Our diagram plots the daily price changes, in percent, so far this year.  It shows that only four days so far in August increased, or decreased, in excess of .5 percent. 

Our research so far has not found specific relationships linking such minor daily price fluctuations and long-term price trends.  For example, the series of daily price changes over the last four days is one decline, after two advances that followed one decline.  This combination has occurred just about as frequently during price expansions as price contractions.

Specifically, they accounted for 1.00 percent of all recent bear market days and for .67 percent of the last three bull markets.  This differential is too small to allow any association with price trends.

As for the following day, declines followed six of the last seven replays of today’s pattern.  The last happening, in June, was followed by losses of 2.3 to 2.5 percent on the next trading day.

DJIA             -.43 percent

NASDAQ      -.01 percent 

S&P500       -.40 percent

This week ended with the momentum of two straight gains that enabled prices to return to Monday’s close.  This was a turnaround from Wednesday, when the DJIA posted its fourth loss in a row.

The good news is that two back-to-back advances are bull market intensive; today’s is the 13^th repeat so far in 2013.  Gains occurred on seven of the following days; further, the median S&P500 gain for the next day was .62 percent, whereas the median decline was much smaller, at -.09 percent.

Today’s diagram reveals the concentration of two successive increases in times when prices are moving higher. Prices on the next day moved up only about a third of the time during the two bear markets; in the three up markets, however, the next day up closes ranged from 49 to 65 percent.

Finally, we can view the two up days in a row advantage as confirming that the current market still emits signals of an ongoing bull market.

DJIA             .31 percent

NASDAQ      .52 percent 

S&P500       .39 percent

The 2.90 percent close of the Ten Year Treasury Debt eclipses many features of today’s market.  Our diagram reveals that two years have elapsed since the rate was that high.  While interest rates and stock price run in opposite directions, the high rates in 2009, however, parallel the bull market gains of the S&P500.

Nevertheless, the tenor of the bond market and the open market purchase policies of the Federal Reserve deserve front-burner consideration.

Finally, after six losing days the DJIA posted a gain. Yet the DJIA closed below the 15,000 level for the second day in a row.  Also today’s .86 percent gain of the S&P500, coincidentally, just about equals its average daily increase in this, since March 2009, expansion.

DJIA             .44 percent

NASDAQ    1.08 percent 

S&P500       .86 percent

With the NASDAQ and the S&P500 also declining after yesterday’s advances, the record shows only one previous close with today’s pattern.  That was on January 15, 2009, just two months before the 2007/2009 decline ended.  Accordingly, if that single observation signals anything, it points to prices moving higher.

A similar, same projection results when neglecting the NASDAQ and the S&P500 and consider only the frequency of six successive DJIA losses.  Our diagram shows the most recent 18, distributed over the last four market variations.  Though crossed the tape during the 1996/2000 expansion, the next two bull markets had 11 such closes.  These turned into higher prices and positive closes on eight days, while the other three continued into a seventh consecutive DJIA decline.

Note that the next day outlooks for the seven bear market occurrences have a less favorable stance because the diagram shows an almost equal distribution of five gains and four declines.

While recent data -as well as commentaries- favor a cautious if not a negative outlook, this record of six DJIA losses in a row seems to point to a different, positive stance.  

DJIA              -.70 percent

NASDAQ      -.38 percent 

S&P500        -.58 percent

The NASDAQ and the S&P500 moved up, at last, after four declines in a row, but the DJIA went down again.  Though that loss was a mere  -.05 percent, it nevertheless tallies as a decline.  This yields a rare combination –   indeed, the record shows only three such previous days –with five straight DJIA losses combined with a first day recovery of the NASDAQ and the S&P500.  Ordinarily such an infrequent pattern would merit little consideration, yet the fact is that they all happened at crucial points in the price cycles. 

Consider today’s diagram, showing their proximity to turning points.  Though the earliest one happened days after the 2000 market top, the major part of that three year long decline occurred subsequent to this pattern.

The second of these three events took place in January 2009, just 36 trading days before prices hit the bottom that marks the beginning of the current bull market.

The final happening, in August 2010, is the most interesting.  It came just eight days after an intermediate market high and seven days before the following local bottom.  This episode cost the S&P500 some 80 points.  Then prices took off, climbing with almost no interruption to recent highs.

Obviously three events over the last 17 years of market ups and downs do not rank as a projection guide; nevertheless these extraordinary days deserve attention.

DJIA              -.05 percent

NASDAQ        .68 percent 

S&P500         .38 percent

Four straight losses are rare: today’s is only the 26^th in the 4,400 trading days since the beginning of 1996.  Though infrequent –at less than one out of every hundred days- they occur twice as often in bear markets than in bull markets.  Yet in expansions, the following day sees prices rising at four times the rate of declines; but in bear markets prices go up at just about the same rate as they fall.

Weakness is the rule so far this month, with the S&P500’s median daily price change negative, at -.33 percent.  This compares to increases of .15 percent and .12 percent for July and June.  Yet the August number for all of this expansion (since March 2009) comes to about zero, while the medians for July and June are .08 and .10 percent.    

Today’s diagram compares the daily closing prices of this bull market with last 2003/2007 expansion.  They show many parallels, and we call attention to their recent near equivalents.  Further concern should be directed to this bull market’s age, which, at 1,118 days is fast approaching the 1,154 trading day mark at which the 2007 market began its downturn that lasted almost two years.

DJIA              -.47 percent

NASDAQ      -.38 percent 

S&P500        -.59 percent