Prices recovering after two declines happened 74 previous times in this century, with the last two repeats occurring almost next to each other, last October 26 and October 23. While this patterns frequency, through good and bad times, averages about two percent, daily price changes vary over a wide range. They extend from near zero percent all the way up to plus fourteen percent.
Price changes on the following days display a similar wide breadth. They fell near five percent at the beginning of November 2008 and then gained over six percent just five days thereafter. Likewise, on the last repeats of this pattern, the S&P500 declined -1.44 percent on one next day, and then lost just -.07 percent on the following next day; the DJIAs changes were -1.82 percent and plus .07 percent for these same days.
Our diagram identifies these large change days, using solid green triangles for next day changes larger than plus two percent, and similarly solid beige circles for losses deeper than minus two percent.
These markings reveal that these large positive and negative next day changes cluster around turning points, when major changes occur in the trend of prices. Thus the changes near up six percent and down six percent happened four months before the market bottom of 2009 and the down two percent and up near four percent pair occurred just days after that same 2009 bottom.
While the three repeats of this pattern since the end of last October may cause concern that the current market is near a top, note that past turning points happened only when price changes were significantly in excess of todays changes.
DJIA .86 percent
NASDAQ .97 percent
S&P500 .88 percent
