All three indices lost more than three percent today, halting the attempt to return to the growth path of April. Now 25 trading days after the last top, the market has failed to maintain the last of the three robust gains that seemed to promise higher prices.
Todays graph compares the decline of 2007 with the previous, 2000 cycle. Further, it extends that earlier sequence into the future to evaluate the markets current performance. As noted previously, the current cycle lost more, and realized it faster than in the 2000 downturn. .Additionally, it recovered earlier.
Despite this timing differential, however, the overall time paths of the two cycles, so far, share the same profile. Accordingly, if the profiles and lengths of these price cycles depend significantly on the time elapsed from the previous peaks, the diagram argues that the recent drops may not be signaling an early end to the trend of higher prices.
While an early bird does not mean spring is here, nevertheless the current price formations can be used to argue that these parallel declines signal pauses rather than an end to this cycles recovery phase. Obviously, this is an eye-ball analysis, not verified, either statistically or theoretically. Yet putting this qualification aside, it provides an insight to, and qualification of, current fears that severe structural changes demand a re-assessment of capital values. DJIA -3.15 percentNASDAQ -3.64 percent
S&P500 -3.44 percent