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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