January 20, 2009
In stark contrast to last Fridays analysis, todays comments focus on the significant losses that hit the indices today. There are just ten closes with deeper losses in our data stretching back to 1950. In fact, there is none as deep between 1950 and the end of 1987.
Of greater significance than the actual losses, is the fact that in the past, they all came except one when prices were experiencing substantial declines. Indeed, four of these occurred between October and December of last year.
Thus todays -5.78 percent attrition of the NASDAQ, the -5.28 erosion of the S&P500 and the DJIAs -4.01 percent loss, might be a signal of further declines in the future. The record shows only one occasion, in 1987, when a major upturn followed such deep reactions.
However, such a future need not indicate that tomorrow will see another sharp drop. In the past, there were only two days on which further deep declines followed; on the other nine occasions, prices increased instead, ranging from 2.7 percent to 5.9 percent advances.
DJIA -4.01 percent
NASDAQ -5.78 percent
S&P500 -5.28 percent