July 15, 2010 Minute, Unusual Changes Mean What?With the S&P500 gaining only .12 percent and the NASDAQ easing some -.03 percent while the DJIA lost -.07 percent, today becomes the third repeat of the +1/-1/-1 pattern since 1950. Indeed the other two occurred way back, in 1972 and 1978. In addition, focusing on the negligible size of these change, reveals only four previous sessions in the same range.The span selected for the DJIA ranges from zero to -.10 percent, the NASDAQ lies between zero and -.05 percent and the S&P500 goes from zero to +.15 percent. Selecting only closes within these ranges and only when all three indices experienced these simultaneously, yielded one observation each in 1987, 1992, 2006, and 2010. That last one took place on March 3 of this year.
The first diagram plots the S&P500 from mid-2003 to the present. The incidence of 2006 preceded a decline that reversed itself before the 2007 high. The March case occurred immediately before the April top; the outcome of these recent days whether prices will continue to recover or instead fall further lies in the future.
Evidence of this criterions forecasting ability, however, diminishes considering the second diagram. Whereas the 1987 anticipates a significant drop, the second instance, happened immediately before the following boom.In summary, one way of treating these coincidences is to claim that three of the four mini-sized results projected declining prices. Yet a more cautious interpretation is to appreciate this mix as a possible early warning instead. Nevertheless, after the many optimistic projections based on similar reasoning, it is quite fitting to put these negative aspects on the front burner.
DJIA - .07 percent NASDAQ - .03 percent S&P500 .12 percent