Prices turned down for the second day in a row, plunging even further than the substantial losses of Monday, just three days ago. It could be argued that the budget battle between President Obama and the Congress is to blame. Yet, with 16 previous days suffering even deeper declines in just this year alone, surely there must be other fundamentals behind such setbacks.
Yet these sharp reversals also have a positive feature: they come, almost always, at the bottom of a correction. They seem to signal an end to a series of negative days, to indicate an increase in future prices.
This feature is evident in today’s diagram: it shows five of these deep losses close to coinciding with correction bottoms. We see only two sharp declines occurring before further price erosion.
In another dimension, consider today’s closing pattern. There have been two losing days in a row; they followed a positive day; this in turn came after losses on two previous days. There are just 16 previous days –in the more than 4,400 trading days since 1996- with this combination. Further, just three came while the market was heading down, the other 14 happened during bull markets- with eight just in 2013.
DJIA -.90 percent
NASDAQ -.76 percent
S&P500 -.90 percent
