USMarketView

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The DJIA added .26 points today – a change so small compared to its close of 16,072, that more decimal points than comfortable are required to size it. The S&P500’s change was not much larger, but it rounds to .01 percent. Yet the NASDAQ added .58 percent on its fourth up day in a row.

The resulting pattern of four gains for the NASDAQ combined with one day gains for the other two indices, has occurred just 21 other times.  Today’s diagram plotting these days  shows that these days favor turning points.  Look at the one happening the day after the market peaked in 2007.

The outlook for tomorrow, based on this history, is negative; there were only  six gains, compared to 15 losses on the day following this pattern.

DJIA              .00 percent

NASDAQ        .58 percent

S&P500         .01 percent

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Today’s close -with the NASDAQ higher for the third day while both the DJIA and the S&P500 declined after two previous up days- is the fifth such pattern in recent months.  The last two happened just days ago on November 12 and November 5, with two earlier ones in early September.  Prices on the following days fell as often as they increased.

Today’s focus, though, is on the size   of these changes.  Earlier these fell in the range of minus .03 to minus .28 percent for the DJIA and the S&P500.  Today they are minus .05 and minus .13 percent; the NASDAQ moved higher, but its gain at .07 percent is also negligible.

We continue our focus on the extraordinary length of the current bull market, now in its 1,187^th day of expansion – comparing the size of recent daily changes with those happening near the end of the two previous bull markets.

We note that the daily S&P500 changes before the 2007 were comparably small – as in recent days.  But more telling is the history after these previous downturns: those daily changes were as small as in recent days and their daily up-and-down changes are near parallel.

DJIA                -.05 percent

NASDAQ           .07 percent

S&P500          -.13 percent

The DJIA’s new mark is its 9th crossing of a thousand threshold. Though it took 139 trading days to go from a 15,000 close to 16,000 – it is not the fastest thousand point rise. Indeed, there were just 65 sessions between 14,000 and 15,000.

Yet, at the same time, new record highs create concern; how much longer, how much higher, can the market sustain this bull market?

Note that the ‘shortest time to cross a thousand threshold’ occurred immediately before the last two market tops, in 2003 and 2007. The diagram indicates that  it took just 59 days for prices to climb a thousand points in 2007 – but then prices topped out some 57 days later.

DJIA           .34 percent

NASDAQ     .57 percent

S&P500      .50 percent

Now back on line —- Computer problems now repaired

Though prices closed below these record highs, it took just 76 days for the S&P500 to move from 1,700 to 1,800.  That is just about three quarters the number of days for this index to move from 1,600 to 1,700; there were 105 days between the S&P500’s 100 point gain to 1,600.  The previous 100 point advance, to 1,500, took 215 days.

Clearly, price gains are accelerating – that is the good news, yet cautious investors recognize that such step-ups tend to herald a slowing, if not an outright reversal.

Today’s configuration of four advances for the DJIA combined with one day declines of the NASDAQ and the S&P500 occurred just 11 previous times over the last five price cycles.  All came during bull markets.

Our diagram reveals three of these happening 161, 138, and 59 days before the 2007 cycle peak.  Whereas the two earlier repeats in this expansion came before prices escalated further.

This history shows that tomorrow holds an even chance for gains and losses.

DJIA                .09 percent

NASDAQ       -.93 percent

S&P500         -.37 percent

Prices continue streaking higher in this bull market – already the longest and sharpest expansion in recent history.  Today’s count is 1,181 days since the last bear close in 2009, outpacing the 1,154 day 2003/2007 bul market. Further, the S&P500 gain of 266 percent from its 2009 low, exceeds the previous 254 percent record of the 1996/2000 recovery.

Consider the fundamentals supporting this record performance.

1.     Interest rates now at unprecedented lows will not rise given the strong hint of further Fed’s Board of Governors,

2.    The current low rate of inflation should continue as unemployment hovers in the seven percent range.

3.    Contrary to the ‘stagflation’ reality of the previous, recent recessions, prices will remain stable given the rash of Asian imports for durables, electronics and other new consumer items.  Whereas the continuing disquiet  at the country’s foreign indebtedness takes center stage, the fact is that these low cost-high quality imports have broken the cycles of wage push inflation enabled by the oligopoly of steel and auto sector and by the strong union power it engendered.

4.    Further, the disquiet at the expansion of the minimum wage service sector neglects the price stability resulting from  the lack of market power by the franchised retail sector and of their employees.

These realities serve to support this bull market: it owes much to the continuing unemployment that restrains inflation.  It allows the Fed to maintain its purchases, maintaining the low interest rates that yield high asset prices.

DJIA              .54 percent

NASDAQ        .33 percent

S&P500         .42 percent

While the upticks were small, the DJIA and the S&P500 moved up again, reaching levels never reached before.  The NASDAQ moved higher for the fifth straight day – although it remains far below its all-time high of 5000 during the dotcom boom in 2000.

Today’s combination of two gains in a row for the DJIA and the S&P500 combined with five consecutive increases by the NASDAQ is extremely rare: just four happenings over the last five price cycles, and 34 overall since 1950.

The diagram locating these days shows prices declined on three of the following days but no relationship to price peaks or bear market bottoms.

DJIA              .35 percent

NASDAQ        .18 percent

S&P500         .48 percent

Today’s NASDAQ close of 3919.92 is greater than yesterday’s 3919.79 by less than .001 percent.  Nevertheless this change, and other days on which the NASDAQ advanced less than .01 percent, occurs far more often in bull markets than when prices are moving down.  Accordingly, today’s action continues previous signals of further gains.

So far, more than six percent of all closes in the current bull market yielded NASDAQ gains smaller than .1 percent.  In contrast, the previous, 2007/2009 bear market had just 1.4 percent positive changes this small.  The diagram shows the frequency of these small closes over the last several price expansions and contractions.

Clearly, bear markets have far fewer small positive gains days; they range from  1.2 to 1.4 percent.

Further, our history shows that prices on the following day increased more often in good times than in falling markets.

One final comment – today’s pattern of three consecutive advances for the NASDAQ combined with a one day decline by the DJIA and the S&P500 is the first such combination in this century.

DJIA              -.21 percent

NASDAQ        .003 percent

 S&P500       -.24 percent

Today’s gain makes it two up days in a row – quite a difference from the up-then-down changes of the previous three days.  Given that our last post, describing this past Friday’s large advance as occurring more often when prices are trending down, today’s focus is on the frequency of such strings up daily direction reversals.

Whereas it seems quite commonsensical to believe that such up-then-down sequences reveal investors’ indecision about the market’s direction, and given this bull market’s record of 1,177 days of expansion –the longest in 17 years- today’s analysis examines this conjecture.

The answer is a resounding no.  Our diagram pictures the S&P500’s daily closes for each day of the last three bull markets.  Whereas some of these closes cluster near the end of the 1997/2000 expansion, they are absent altogether near the next highpoint.

Moreover, as the focus on these events since 2009 shows, most of these daily reversal chains happen immediately before substantial price increases.  They reveal no correlation with any future decline.

DJIA             .14 percent

NASDAQ       .04  percent

 S&P500       . 07 percent

Be aware that today’s robust advance on the heels of yesterday’s losses is a feature of bear markets.  Specifically of the 44 incidents since 1997, 31 came while prices were heading down.  Our diagram reveals their incidence at less than one percent during bull markets.

Further, one such combination happened 42 days before the 2007 top.  

Yet with so many of these days in advance of market bottoms, such large back-to-back changes in opposite directions changes could be a signal of rising prices in the future.

DJIA              1.08 percent

NASDAQ        1.60 percent

 S&P500        1.49 percent