USMarketView

No great surge of optimism, nor pessimism, ricochet through the financial world as the Treasury avoided its threatened abyss at the 12^th hour.  The NASDAQ and the S&P500 closed with moderate gains whereas the DJIA was in the red by just .02 percent.

This action, following yesterday’s DJIA advance while the NASDAQ and the S&P500 declined, yields a pattern seen more often during bull markets than when prices are heading down.  However, such closes are far from common.

We note, though, that one of these happened just one day before the bull market ended in March 2000; also that another occurred 16 days before prices hit bottom in March 2009.

As for tomorrow, the diagram shows that higher prices outnumbered declines 2:1 in the first bull market, 2.5:1 in the second expansion, and 3:1 in the current, since 2009, growth cycle.

Yesterday Standard and Poor estimated that the 16 day government shutdown would reduce 2013’s GNP growth by a full percentage point, from three to two percent.  We belief this projection is a substantial overstatement.

Consider the following facts.  The loss of GNP from the original growth projection of three percent is a full one percent.  That one percent decline, when divided by the three percent, means a forfeiture of 33 percent. 

Yet the shutdown lasted only eleven business days, of the 260 business in the calendar year.  That means the federal government inactivity amounts to 4.2 percent of this year’s business days.

This multiplier seems excessive – that an idle factor 4.2 percent would result in a 33 percent GNP loss.  Further, the rest of the economy, which outweighs by far the Federal contribution, was not shutdown, even if its pace was hindered by the government furlough.

DJIA              -.02 percent

NASDAQ         .62 percent

S&P500          .66 percent

That’s the headline as we post our blog at 5:20 PM.  After the many days of the yes/no strife in the Congress, the market seems to belief that the U. S. Treasury will avoid default.  This is the inference of today’s 1.38 percent advance of the S&P500.

As our diagram reveals, it is rare to see daily gains this large.  Only four such days occurred before September 30.

Yet the S&P500 added some 2.18 percent just days ago, on October 10, while the federal shutdown remained unresolved.

It seems safe to conclude that the stock market remained firm, that stockowners stayed calm, throughout these uncertain days, since the recent profile of the S&P500 remained unchanged from the first nine months of this year.

DJIA              1.36 percent

NASDAQ        1.20 percent

S&P500        1.38 percent

Today’s declines were not unexpected: history reveals only an even chance of further gains on the day following four straight advances.  Hence, we ought not to blame the Congressional stalemate. 

Yet the uncertainty of what might happen deserves attention.  Today’s diagram considers the last time the government operated without a budget in 1995; it resulted in two shutdowns. They happened in November and again in December, with the latter lasting into early January 1996.

We have plotted the daily S&P500 close as a proportion of the first January close in 1995 and 2013.  This comparison then is net of the absolute price differecnes in these two years.

Quite surprisingly, however, the price paths of these two far-apart years are almost parallel. Nevertheless, this year’s declines around the September 30 end of the government’s fiscal year, are sharper than in  1995.  The fact that now the government iss shutdown, whereas in the earlier episode, the feds were not cut-off till mid-November is one way to explain this difference.

Overall,  though, it seems reasonable to infer that the 1995 budget difficulties were short lived, that stock prices withstood the negative impacts, and suffered only temporary losses.

Yet, with the interest rate on the Ten Year Treasury  rising again, closing at 2.72 percent, it is clear that the outlook of the basic financial market is far from optimistic. 

DJIA              -.87 percent

NASDAQ        -.56 percent

S&P500        -.71 percent

Four straight advances by the DJIA and the S&P500 propelled the market to new highs.  These closes, combined with three consecutive NASDAQ gains, yield a combination seen just six other times since 1996.  More important than the count, however, is the fact that all happened during bull markets.

Further, as today’s diagram shows, with almost all occurring during the early and middle stage of these last three bull markets, this pattern of closes suggests still higher prices ahead.

So far this market seems not affected at all by the continuing government shut down.  The one slight exception comes from the rising interest rates on the U.S. Treasury’s ten year debt, which have increased a total of 2.2 percent over the last five business days.

DJIA              .42 percent

NASDAQ        .62 percent

S&P500        .41 percent

October 10, 2013    Large Gains as Bull Market Breaks Length Record

Prices increased more than two percent today, setting a new  duration mark, on this the 1,155^th trading day since its 2009 low.  The longest previous bull market ended in October 2007, after 1,154 days.

Today’s closing pattern also deserves attention: the combination of two straight advances by the DJIA and the S&P500, combined with one positive day for the NASDAQ occurs more often when the trend of prices is up.  Our diagram locates these days.  While the proportions vary significantly, note that the 1996/2000 bull market’s frequency runs more than trhree times the rate in the following bear market.

Note that the record points to a favorable outcome for tomorrow: gains exceed declines about 2:1 in past bull markets.

Yet today’s large price increases cast a shadow on this favorable outlook. Large daily gains occur more often when prices are trending down, than during expansions.  They amounted to four and eight percent of the last two bear markets, but this ratio came to just 1.2 percent, .4 percent and 2.2 percent during bull markets.

DJIA              2.18 percent

NASDAQ       2.26 percent

S&P500        2.18 percent

Prices remained almost the same as the day before, though the NASDAQ fell a bit as the DJIA and the S&P500 edged higher.  The resulting pattern of three straight losses for the NASDAQ with a one day increase for the other two market averages, yields a rare pattern. It occurred just 19 previous times since 1996 – with almost an equal number of hits during bull markets as well as bear markets.

Today’s diagram reveals no consistent differences between these two market phases, and shows more declines on the  following day than increases.

DJIA              .18 percent

NASDAQ      -.46 percent

S&P500         .06 percent

The market repeated its -2/+1/-2 pattern of last week, with prices of the three major market indicators declining for the second straight day, following a positive close, that came immediately after two down sessions.

Perhaps the budget battle is to blame, nevertheless today’s close mirrors two earlier repeats with this combination that occurred in August and April of this year.  Coincidentally, four other such series took place last year.   Indeed,  they total nine since the beginning of this expansion in 2009.

Today’s diagram, shows this combination repeating on nine other occasions since 1996.

So we repeat the view of last week: Washington’s impasse could blie behind this behavior, yet there were sufficient previous parallels, when the market was not under such pressure and uncertainty.

Here we repeat the analysis after last week’s episode of two declines, following a gain, that came after two successive losing days.

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               -1.07 percent

NASDAQ        -2.00 percent

S&P500         -1.23 percent

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October 4, 2013               Week Ends Higher

Today’s gains added to Tuesday’s uptick beat this week’s three down days,  resulting in net improvements of .34 percent for the DJIA, .53 percent for the S&P500 and .95 Percent for the NASDAQ.  Nevertheless, the up and down pattern of the past six days requires attention. This combination -today’s increase, following two losses, after a positive day, which succeeded two previous up days- is rare.  Nevertheless, history shows these to happening more often in bear markets than when prices are moving up.

Counting today’s close, the current expansion now has five such runs, while the previous, 2007/2009 decline had six.  While not much of an absolute difference, consider their relative standing.  These accounted for just .43 percent of this bull market’s days, but represented 1.69 percent of the previous bear market closes.  The bear market frequency overpowers the current market by a factor of four.

Moreover, consider two other factors in conjunction with this frequency profile. 

The age of the current expansion, at 1,151 trading days, exceeds the 1,059 days of the 1996/2000 bull market; it is just short of the 1,154 days of the previous 2003/2007 growth cycle.

Secondly, the S&P500 at this point stands at 250 percent of its 2009 low, almost as much as the 254 percent of  the 2000 bottom, but substantially above the last bull market’s recovery of 195 percent.

DJIA               .51 percent

NASDAQ         .89 percent

S&P500         .71 percent

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