May 4, 2011 Third Successive Decline
Do the losses of the last three days hint that the market is about to top out? People may ponder about this possibility simply because of the rapid pace of the recent advance. However, objectively, three losses in three days by these three indices need not translate to a decline in the near future. That is so simply because while there have been 53 other runs of three straight losses since 2000, the market topped out only twice: in 2000 and 2007.
Strangely, but actually, prices have always moved up, ending higher, on the last day of the upswing. At the 2000 top, both the NASDAQ and the S&P500 posted their fourth straight advance the day before the start of the market downturn.
Similarly, the day before the 2007 top, the NASDAQ again posted its fourth consecutive advance on the day before prices started their downturn.
Of course the counterargument to this logic is that prices of course move higher on the last day of the expansion; and then remind us that on April 29, last Friday, the NASDAQ posted its eighth straight gain, and that the other two indices closed up for the fourth successive day.
While this history is correct, we must add also, that none of these previous tops had runs of three straight declines in the first few weeks of these previous downturns.
DJIA -.66 percent
NASDAQ -.47 percent
S&P500 -.69 percent