The down count now is three declines in a row for the DJIA and the S&P500 as the NASDAQ took a decline for the second day in a row. The last time we saw this pattern was in early June; then all three averages shot up more than one percent on the following day.
But in an earlier experience, in May of last year, three more down days followed today’s pattern. Then prices shot up more than a full percent – after six successive losses.
Today’s diagram shows this pattern’s 19 previous recurrences over the three price cycles since 1996. With just three happening during downturns, and the other sixteen distributed over bull markets, today’s pattern –as in many recent days- sees higher prices ahead.
Yet the clear uncertainty hanging over this hot market is the Federal Reserve’s intention on continuing its record open market purchases. Just yesterday the presidents of two regional Federal Reserve Banks reported that the Fed could cut back its stimulus as early as next month. This obvious negative impact will result in downward pressure on bond prices and of course all other asset values, including the stock market.
DJIA -.31 percent
NASDAQ -.32 percent
S&P500 -.38 percent
