USMarketView

The market repeated its -2/+1/-2 pattern of last week, with prices of the three major market indicators declining for the second straight day, following a positive close, that came immediately after two down sessions.

Perhaps the budget battle is to blame, nevertheless today’s close mirrors two earlier repeats with this combination that occurred in August and April of this year.  Coincidentally, four other such series took place last year.   Indeed,  they total nine since the beginning of this expansion in 2009.

Today’s diagram, shows this combination repeating on nine other occasions since 1996.

So we repeat the view of last week: Washington’s impasse could blie behind this behavior, yet there were sufficient previous parallels, when the market was not under such pressure and uncertainty.

Here we repeat the analysis after last week’s episode of two declines, following a gain, that came after two successive losing days.

Yet these sharp reversals also have a positive feature: they come, almost always, at the bottom of a correction.  They seem to signal an end to a series of negative days, to indicate an increase in future prices.

This feature is evident in today’s diagram: it shows five of these deep losses close to coinciding with correction bottoms.  We see only two sharp declines occurring before further price erosion.

In another dimension, consider today’s closing pattern.  There have been two losing days in a row; they followed a positive day; this in turn came after losses on two previous days.  There are just 16 previous days –in the more than 4,400 trading days since 1996- with this combination.  Further, just three came while the market was heading down, the other 14 happened during bull markets- with eight just in 2013.

DJIA               -1.07 percent

NASDAQ        -2.00 percent

S&P500         -1.23 percent

uuu

October 4, 2013               Week Ends Higher

Today’s gains added to Tuesday’s uptick beat this week’s three down days,  resulting in net improvements of .34 percent for the DJIA, .53 percent for the S&P500 and .95 Percent for the NASDAQ.  Nevertheless, the up and down pattern of the past six days requires attention. This combination -today’s increase, following two losses, after a positive day, which succeeded two previous up days- is rare.  Nevertheless, history shows these to happening more often in bear markets than when prices are moving up.

Counting today’s close, the current expansion now has five such runs, while the previous, 2007/2009 decline had six.  While not much of an absolute difference, consider their relative standing.  These accounted for just .43 percent of this bull market’s days, but represented 1.69 percent of the previous bear market closes.  The bear market frequency overpowers the current market by a factor of four.

Moreover, consider two other factors in conjunction with this frequency profile. 

The age of the current expansion, at 1,151 trading days, exceeds the 1,059 days of the 1996/2000 bull market; it is just short of the 1,154 days of the previous 2003/2007 growth cycle.

Secondly, the S&P500 at this point stands at 250 percent of its 2009 low, almost as much as the 254 percent of  the 2000 bottom, but substantially above the last bull market’s recovery of 195 percent.

DJIA               .51 percent

NASDAQ         .89 percent

S&P500         .71 percent

Prices turned down for the second day in a row, plunging even further than the substantial losses of Monday, just three days ago.  It could be argued that the budget battle between President Obama and the Congress is to blame.  Yet, with 16 previous days suffering even deeper declines in just this year alone, surely there must be other fundamentals behind such setbacks.

Yet these sharp reversals also have a positive feature: they come, almost always, at the bottom of a correction.  They seem to signal an end to a series of negative days, to indicate an increase in future prices.

This feature is evident in today’s diagram: it shows five of these deep losses close to coinciding with correction bottoms.  We see only two sharp declines occurring before further price erosion.

In another dimension, consider today’s closing pattern.  There have been two losing days in a row; they followed a positive day; this in turn came after losses on two previous days.  There are just 16 previous days –in the more than 4,400 trading days since 1996- with this combination.  Further, just three came while the market was heading down, the other 14 happened during bull markets- with eight just in 2013.

DJIA              -.90 percent

NASDAQ        -.76 percent

S&P500         -.90 percent

Small changes continue to characterize this market: today’s losses follow yesterday’s gain … and that came after two up days.  Our diagram shows just 34 such closes in recent times.

Prices continued to seesaw, with further losses outnumbering the number of positive days.  The current upturn, has twice as many declines as advances, with this pattern happening about once in every 100 closes.

DJIA               -.39 percent

NASDAQ         -.08 percent

S&P500           -.07 percent

You would think the failure of Congress to enact a federal budget would distress the financial markets; you would think with the Treasury fast approaching its borrowing ceiling, interest rates on the federal debt would be increasing.

Quoting a report by Reuters , “The U.S. Treasury on Tuesday started using its last tools for pushing back the day when the government will run out of legal borrowing authority, Treasury Secretary Jack Lew said,” reveals more  somber news –that should cause a dumping of federal IOU’s.  Such sales would push up the effective yield of Treasury bonds.

Yet, as our diagram indicates, the yield of the benchmark Ten Year Treasury paper has declined.

It could be that the Federal Reserve, in its role as the underwriter of U.S. government debt, is conducting an aggressive campaign of supporting the Treasury IOU’s.  That the Fed is   purchasing all the debt that frightened investors are dumping, before prices fall –or interest rates rise- even further.

That could be, and yet, even if this scenario were happening, it is strange that the interest rate of the Ten Year Treasury debt has declined  since the beginning of September.

DJIA               .41 percent

NASDAQ      1.23 percent

S&P500         .80 percent

With the Washington budget drama/comedy/tragedy on the front burner, consider the 1996 situation, when the clock ran out on the federal government’s cash flow.  The stock market continued its bull market climb, with perhaps a minor pause around September 30.  It was business as usual for the country’s financial sector; it had no problem overcoming the frictions resulting from the spending drop.

While many individuals suffered hardships, suffered lay-offs, or faced a shortened workweek, most everyone escaped the consequences of no money to pay the bills.

The government’s actual halt did not come until November 14; it lasted 34 days, ending finally on January 6.

The diagram shows the S&P500 continuing its move to higher prices early on during that crisis.  Though prices slumped for a while, they soon regained these losses.  Later on though, between the end of January to mid-March 1997, the market did lose ground – yet that happened far after the shutdown, when government spending had once again resumed.

September 30, 2013  2:23 Eastern

Today’s losses, offsetting some of yesterday’s gains, seem an extension of the five-day decline by the DJIA and the S&P500.  Though the NASDAQ closed just short of its September 18 market high, the S&P500 has now declined to its lowest price in the seven trading days since that top.

The profile of the current market reveals many similarities to the waning days of the last two bull markets.  Consider our diagram.  It shows the last 50 trading days before prices turned down in 2000 and 2007.  For ease of comparison, these data points are not dollar numbers; instead, to provide a common basis, they are stated as the proportions of their respective highs.

For the basis of the current market profile, we use the most recent S&P500 high -of Wednesday a week ago- putting today’s close seven days past the previous bull market tops.

Though simplistic, and short of in depth analysis, these mirror images of market tops catch our attention.  Indeed, with the current expansion now in its 1,146^th day, while these earlier bull markets ended after 1,059 and 1,154 trading days, the outlook for still higher prices is far from certain.  

DJIA             -.46 percent

NASDAQ       -.15 percent

S&P500        -.44 percent

The good news is that the market finally closed out of the red, but this first up day in a week yielded only modest gains.  The DJIA’s  .36 percent gain comes considerably below its post 1996 median advance of .56 percent.  Similarly, the S&P500’s median of .60 percent is a good deal better than today’s  .35 percent.  Even the NASDAQ’s higher .70 percent failed to equal its  .75  percent daily median gain

Today’s combined performance of these three averages stands in 957^th        place from their best day since 1996.  Only 230 days had smaller gains.

Thus it is quite proper now to review the seven-day advance earlier this month, to consider whether those gains borrowed from the future; whether they have some meaningful responsibility for the last five losing days.

Today’s diagram compares this positive run -in orange- with this year’s three earlier seven-day advances.  It shows prices 12 days after the September sequence, now, at nearly the same level as in March and July, though it is lower than the January profile.

Thus it would not be meaningful to belief these recent losses the direct result –or pay back- of that earlier advance.

DJIA             .36 percent

NASDAQ       .70 percent

S&P500       .35 percent

Prices continued their decline with the DJIA and the S&P500 losing ground for the fifth day in a row; the NASDAQ posted its fourth successive drop.

Such long strings of negative are rare; they add up to less than one percent of all trading days.  Our diagram plots all of these -there are 18- since the start of the 1996 expansion.  It reveals only five days on which the negative count deepened to six.

Though three of these further losses happened in the current bull market, prices continued to move higher. 

However, as we have noted before, reliable projections based on so few data points are impossible.  That statistical limitation, though, is vexing when developments, as in these recent days, demand a peek into the future. 

Yet history provides two cautions:

As of today, the S&P500 stands at 250 percent of its 2009 low, whereas the last two bull markets topped after recovering 194 percent and 255 percent of their bottoms.

Further, consider this expansion’s length.  At 1,145 trading days since its 2009 low, it exceeds or borders on  the age of the  last two bull markets; they ended after 1,059 and 1,154 days.

DJIA             -.40 percent

NASDAQ       -.19 percent

S&P500       -.27 percent