July 11, 2008
This Post Covers July 8 through July 11
Todays decline continues the pattern of daily reversals of direction, occurring since July 2. Indeed, if the NASDAQ is added to the comparison, the market has now completed its tenth sequence of up,down,up,down days in 2008. Seven of these happened when these indices were on the way down, while two coincided with a lower turning point, as prices started to rise.
All told, there have been 75 of these chains in the 2,142 trading days since January 2000. Moreover, they tend to occur in clusters, after which price changes are more random. In 2007, for example, November saw four such sequences, and two in July, while one occurred in January, May and June.
It would be rewarding to find these sequences related to changes in the markets direction, but the record fails to reveal such a relationship. For example, in the last eight years, there were as many in years when prices were rising as in years when they declined.
Turning to what might happen on the day after a up,down,up,down days sequence, there is no indication in the past data. So far, in this decade, the NASDAQ and the S&P500 had 39 increases and 35 price decreases on the next day. It might be tempting to cite the DJIA result to forecast a positive next day, for that index had 41 increases compared to only 33 declines. But such a conclusion seems precarious in the light of the randomness of the data.