USMarketView

Prices slipped for two successive sessions for the third time this month.  It would not be surprising if the current turmoil in Washington, combined with President Obama’s falling ratings, bear some responsibility for the market’s lack of optimism.

History shows that two down days in a row occur more frequently when the trend of prices is down; they account for 5.5 percent and 6.8 percent of all days in the last two bear markets.  In contrast, while the rates for bull markets are 3.9, 5.5, and 5.3 percent, these differences are quite modest.

Yet a significant disparity exists in how far prices decline on the second successive loss day.  Today’s diagram shows these days with a separate scatter for each of the last five price cycles.  The median S&P500 daily losses in bear markets of -1.37 and -1.44 percent are almost twice as deep as the median losses during bull markets.

Further, with today’s losses far smaller than any of these medians –even those of bull markets- it appears that prices will remain robust; they may even accelerate once our government gets our current problems behind.

DJIA               -.47 percent

NASDAQ       -.28 percent

 S&P500         -.38 percent

Prices declined about a half a percent as the Federal Reserve two day meeting ended, with expectations that it would maintain its open market purchases and continued its policy of ease.  Yet given the deepening disquiet in Congress about the Fed and its upcoming chairperson, it is not unreasonable to consider the possible impact on asset prices.

Clearly some of the Congressional enemies of the expansionary policy of the Fed are increasingly vocal, and are now finding support for their demand of an audit.  They are pressuring for more openness by the Fed – even though making the Fed tip its hands on intended purchases and sales will not only create windfalls for traders but also lead to diminishing their impacts on the economy.

Our diagram shows just how these short-term interest rates affect asset prices: clearly the price changes in the S&P500 run parallel to the interest rate of the Ten Year Treasury debt.

DJIA               -.39 percent

NASDAQ         -.55 percent

S&P500         -.49 percent

Up for the fourth straight day, the S&P500, though gaining a mere .56 percent, posted another new high.  The other two averages, however, posted their first gain after falling the day before.  This extremely rare pattern happened this past July –and only three other times since 1996.

Therefore, we focus today on four advances of the S&P500 while the DJIA and the NASDAQ closed with different counts.

With our diagram revealing 38 such days, with all but five coming during bull markets, this pattern clearly signals prices moving higher.

In the past, the following day posted gains more often than losses.

DJIA               .72 percent

NASDAQ        .31 percent

S&P500         .56 percent

Up for the third successive day, the S&P500 reached 1762.11 moving along a trajectory of successively higher tops.  Further, today’s pattern of three advances for the S&P500 while the DJIA and the NASDAQ turned down, parallels the previous close, in mid-July, when the S&P500 set an earlier new high.

Today’s diagram showing this pattern’s previous closes over the past five market spans, reveals some clustering at market highs and lows.  One happened on the last day of 1999, some 58 days before that 1996/2000 expansion turned down.  Similarly, another one occurred some 200 days before the 2007 top.  Finally, one of these days took place in February 2009, just 18 days before the start of this current bull market.

We focus on these turning point relationships as a caution; the S&P500 continues to escalate, setting new highs while the current expansion, now in its 1,167^th day, is the longest bull market on record.

DJIA               .39 percent

NASDAQ         .37 percent

S&P500        .44 percent

Prices advanced for the second straight session as the current upward movement completed its 12^th trading day since its last low on October 9.  Today’s diagram shows the three completed steps of this year’s bull market.  It reveals these intervals becoming shorter, declining from near thirty days at the beginning of the year to the last complete wave on October 9, some 15 trading days.

Should this trend continue, then the current price advance will continue for three more days.

So far this year, gains on the positive side run considerably above the losses on the following decline.  Prices increased by 7.4 percent and fell some 4.9 percent in the first wave.  Gains on the following segment came to 8.6 percent whereas they fell only 4.6 percent in that decline.  The 5.8 percent increase of the last complete cycle also exceeded the following loss of 4.0 percent.

At this point, some 12 days into the current upswing, the S&P500 has added 6.3 percent.

DJIA            .39 percent

NASDAQ      .37 percent

S&P500       .44 percent

Gains came to just about equal the losses of the day before, thus the major averages remained almost unchanged.  Similarly, in the past, prices on the following day -that is tomorrow- had an almost equal number of gains and losses.

With little to be said about this pattern, we continue with our analysis of differences and similarities of this and past bull markets.

Today’s diagram shows the daily changes of the S&P500, from the 950^th day of expansion to the last day of expansion.  It reveals two significant differences between the current bull market and the previous two expansions.

1.     Clearly  daily fluctuations are far smaller in this expansion than in both the earlier ones,

2.    The standard deviation, which summarizes the daily volatility, in the current market is less than half that of the 2000,  is less than half of this expansion,  

3.    The strength of this bull market -as measured by the median of  daily S&P500 changes-  is nearly double that of the two earlier ones,

4.    The profiles of the 2000 and 2007 market reveal increasing daily variability as they reach their tops.  

DJIA               .62 percent

NASDAQ        .56 percent

S&P500         .33 percent

Finally, after five consecutive gains, the NASDAQ and the S&P500 declined.  Yet the overall price trend reveals substantial momentum.  So far, 71 percent of the S&P500 closes showed gains, whereas in earlier months this ratio was in the 50 to 60 percent range.

Prices close with new highs on a near every day basis, as this expansion, now in its 1,164^th day, continues, though this bull market already is the longest on record.  Thus it becomes reasonable to compare features of this market to what happened as the most recent two tops since 1996 reached their upper turning points.

Today we focus on the number of consecutive up days, considering only runs longer than four consecutive days.  The diagram reveals two recent sets of eight successive gains.  These runs occurred also in the two earlier expansions.  However, with these happening about half way in their run before reaching their tops, we can infer that the current bull market will continue for some time, before prices start their decline.

DJIA              -.35 percent

NASDAQ        -.57 percent

S&P500         -.47 percent

With all three market indicators closing higher, the resultant pattern of five straight advances for the NASDAQ and the S&P500, combined with a first positive day for the DJIA, yields a combination seen just four other times.  The last two took place this year, one just days ago in September with the earlier one on April 26.

Since the other two happened during the 2003/2007 expansion, it seems this pattern and bull markets go hand-in-hand.  However, since one took place some 89 trading days before that top, a caution is necessary.

Given that the S&P500 increased 5.9 percent over the last nine trading days, today’s focus is on the extraordinary strength of the current market.  Our diagram plots these nine-day percent changes of the S&P500.  It reveals that ‘high gain’ segments cluster around declines, but   it shows also none as high as 5.9 percent occurring recently.

Thus the welcoming of strong spurts is not without some apprehension, given their preponderance while the market suffers substantial declines.

DJIA              .49 percent

NASDAQ       .24 percent

S&P500       .57 percent

Today’s  unusual close –the DJIA losing ground whereas the NASDAQ and the S&P500 completed their fourth consecutive advance-  follows Friday’s similarly odd configuration of the DJIA not moving in tandem with these two other market barometers.

Though this pattern occurred only ten previous times since 1996, today’s repeat is the third such close this year.  The two other closes happened this April and just last month, in September.  A further oddness is that all three of these 2013 happenings resulted in only minute changes.  The S&P500, for example, gained just .01 percent today, and even less than .01 percent in the two previous closes.

Further, as in the other and earlier rare patterns, one of these days cropped up just at the 2000 bull market top, while another chanced some 90 days prior to the next, 2007 price maximum.  

Our diagram locates these ten days and shows that prices declined on six of the following ten days. 

DJIA             -.05 percent

NASDAQ        .15 percent

S&P500         .01 percent

Just 12 other days exist closed with today’s combination of three consecutive advances for the NASDAQ and the S&P500 and only two up days for the DJIA.  Today’s diagram shows almost all happening during bull markets, with merely two in declining markets.

Yet the record contains a possible caution: one of these closes coincided with the market top of March 2000.  Moreover, combining this caveat with the record length of this expansion, now in its 1,161^st day, adds credence to this warning.

As for tomorrow, prices moved higher on the day following this sequence just twice as often as they declined, with that ratio rising to three gains and one loss during the 2007/2009 bull market.

DJIA               .18 percent

NASDAQ      1.32 percent

S&P500         .65 percent