March 27, 2009
The market continued its tug of war between the bulls and bears, as the substantial advances of yesterday, as well as Monday, were reversed. This reaction is not unusual; as described in the October 26 analysis. The preponderance of changes in the past, following Thursdays large increase, has been negative. Of course, history also shows 16 advances, but that result failed to repeat today.
Moreover, these earlier strong days in this century, are concentrated in declining, rather than, rising markets. This evidence does not support an early end to the long decline. Indeed, at this stage of the last bear cycle, from 2000 to 2003, falling prices were far from over; the recovery was not to come for at least another year.
The chart below illustrates this comparison. It superimposes the daily closing prices of the S&P500 of the previous cycle over the current time path. The diagram is constructed so that the peak of the earlier cycle coincides with the peak of this one.
Of course it is just a premise that the striking similarity so far will continue in the future and that the turn around is far from imminent. It is equally plausible to conclude that the current cycles upturn will continue, and join the earlier cycles recovery without significant delay.
These twin, opposite inferences, however, do not mitigate the importance and usefulness of historical evidence. Rather, they provide meaningful insights to our analysis of what will happen in the future.
DJIA -1.87 percent
NASDAQ -2.63 percent
S&P500 -2.03 percent