USMarketView

Today’s losses mark the fourth –up then down- price change in the last five days.  Our diagram plots the daily price changes, in percent, so far this year.  It shows that only four days so far in August increased, or decreased, in excess of .5 percent. 

Our research so far has not found specific relationships linking such minor daily price fluctuations and long-term price trends.  For example, the series of daily price changes over the last four days is one decline, after two advances that followed one decline.  This combination has occurred just about as frequently during price expansions as price contractions.

Specifically, they accounted for 1.00 percent of all recent bear market days and for .67 percent of the last three bull markets.  This differential is too small to allow any association with price trends.

As for the following day, declines followed six of the last seven replays of today’s pattern.  The last happening, in June, was followed by losses of 2.3 to 2.5 percent on the next trading day.

DJIA             -.43 percent

NASDAQ      -.01 percent 

S&P500       -.40 percent

This week ended with the momentum of two straight gains that enabled prices to return to Monday’s close.  This was a turnaround from Wednesday, when the DJIA posted its fourth loss in a row.

The good news is that two back-to-back advances are bull market intensive; today’s is the 13^th repeat so far in 2013.  Gains occurred on seven of the following days; further, the median S&P500 gain for the next day was .62 percent, whereas the median decline was much smaller, at -.09 percent.

Today’s diagram reveals the concentration of two successive increases in times when prices are moving higher. Prices on the next day moved up only about a third of the time during the two bear markets; in the three up markets, however, the next day up closes ranged from 49 to 65 percent.

Finally, we can view the two up days in a row advantage as confirming that the current market still emits signals of an ongoing bull market.

DJIA             .31 percent

NASDAQ      .52 percent 

S&P500       .39 percent

The 2.90 percent close of the Ten Year Treasury Debt eclipses many features of today’s market.  Our diagram reveals that two years have elapsed since the rate was that high.  While interest rates and stock price run in opposite directions, the high rates in 2009, however, parallel the bull market gains of the S&P500.

Nevertheless, the tenor of the bond market and the open market purchase policies of the Federal Reserve deserve front-burner consideration.

Finally, after six losing days the DJIA posted a gain. Yet the DJIA closed below the 15,000 level for the second day in a row.  Also today’s .86 percent gain of the S&P500, coincidentally, just about equals its average daily increase in this, since March 2009, expansion.

DJIA             .44 percent

NASDAQ    1.08 percent 

S&P500       .86 percent

With the NASDAQ and the S&P500 also declining after yesterday’s advances, the record shows only one previous close with today’s pattern.  That was on January 15, 2009, just two months before the 2007/2009 decline ended.  Accordingly, if that single observation signals anything, it points to prices moving higher.

A similar, same projection results when neglecting the NASDAQ and the S&P500 and consider only the frequency of six successive DJIA losses.  Our diagram shows the most recent 18, distributed over the last four market variations.  Though crossed the tape during the 1996/2000 expansion, the next two bull markets had 11 such closes.  These turned into higher prices and positive closes on eight days, while the other three continued into a seventh consecutive DJIA decline.

Note that the next day outlooks for the seven bear market occurrences have a less favorable stance because the diagram shows an almost equal distribution of five gains and four declines.

While recent data -as well as commentaries- favor a cautious if not a negative outlook, this record of six DJIA losses in a row seems to point to a different, positive stance.  

DJIA              -.70 percent

NASDAQ      -.38 percent 

S&P500        -.58 percent

The NASDAQ and the S&P500 moved up, at last, after four declines in a row, but the DJIA went down again.  Though that loss was a mere  -.05 percent, it nevertheless tallies as a decline.  This yields a rare combination –   indeed, the record shows only three such previous days –with five straight DJIA losses combined with a first day recovery of the NASDAQ and the S&P500.  Ordinarily such an infrequent pattern would merit little consideration, yet the fact is that they all happened at crucial points in the price cycles. 

Consider today’s diagram, showing their proximity to turning points.  Though the earliest one happened days after the 2000 market top, the major part of that three year long decline occurred subsequent to this pattern.

The second of these three events took place in January 2009, just 36 trading days before prices hit the bottom that marks the beginning of the current bull market.

The final happening, in August 2010, is the most interesting.  It came just eight days after an intermediate market high and seven days before the following local bottom.  This episode cost the S&P500 some 80 points.  Then prices took off, climbing with almost no interruption to recent highs.

Obviously three events over the last 17 years of market ups and downs do not rank as a projection guide; nevertheless these extraordinary days deserve attention.

DJIA              -.05 percent

NASDAQ        .68 percent 

S&P500         .38 percent

Four straight losses are rare: today’s is only the 26^th in the 4,400 trading days since the beginning of 1996.  Though infrequent –at less than one out of every hundred days- they occur twice as often in bear markets than in bull markets.  Yet in expansions, the following day sees prices rising at four times the rate of declines; but in bear markets prices go up at just about the same rate as they fall.

Weakness is the rule so far this month, with the S&P500’s median daily price change negative, at -.33 percent.  This compares to increases of .15 percent and .12 percent for July and June.  Yet the August number for all of this expansion (since March 2009) comes to about zero, while the medians for July and June are .08 and .10 percent.    

Today’s diagram compares the daily closing prices of this bull market with last 2003/2007 expansion.  They show many parallels, and we call attention to their recent near equivalents.  Further concern should be directed to this bull market’s age, which, at 1,118 days is fast approaching the 1,154 trading day mark at which the 2007 market began its downturn that lasted almost two years.

DJIA              -.47 percent

NASDAQ      -.38 percent 

S&P500        -.59 percent

Three losses in a row occur slightly more often in bear markets than when prices are moving up.  However, given the small difference in their frequency, as shown on our graph, today’s pattern is far from a robust signal that lower prices are ahead, that this bull market’s end is near.

This pattern accounted for 2.3 percent of all closes during the 2000/2003 decline; so far, it happened on 1.4 percent of the sessions, in our current bull market that began in 2009. Thus, because this pattern is more likely during price contractions, this configuration would yield to projecting a coming bear market.  However, our judgment is that these frequencies are too close together; that the differences are too small to make a call.

Nevertheless, given the continuing focus on interest rates, the ongoing declarations by the Fed’s officials, and the fact that the interest rate on the ten year Treasury debt keeps rising, the certainty of higher prices surely is in question.

Further, the age of this expansion, now 1,116 days since the last bottom, presents a risky outlook, given that the 1996/2000 bull market lasted just 1,059 trading days, and that even the longer 2003/2007 price gains ended after 1,153 days.  

DJIA              -.20 percent

NASDAQ       -.09 percent 

S&P500        -.33 percent

There are just ten other days when the DJIA, the NASDAQ and the S&P500 dropped this far – and seven of those occurred since 2009.  Our diagram reveals these to be quite recent – yet shows this bull market posting major gains without significant interruption.

Further, a similar adverse day happened just four months ago, on April 17 – yet prices weathered this interruption, climbing further, and achieved new record highs.

One other moderating circumstance, as today’s diagram shows, is that eight of these drops came concurrent with bull markets; only two are bear related.

We note, though, the present concern about if, and if when, the Fed will reverse its buying policy; and how rising interest rates will impact the stock market.  As noted yesterday, the  ten year Treasury has closed with higher interest rates for several days now … and today moved up again, for the eight session in a row.

DJIA            -1.47 percent

NASDAQ    -1.72 percent 

S&P500      -1.43 percent

Prices remain locked in, as the averages move up, then down without revealing a trend.  Yet today’s pattern is a seldom seen combination.  The DJIA, the NASDAQ, and the S&P500 declined, after yesterday’s count of NASDAQ up two days in a row while the DJIA and the S&P500 posted gains after losses the day before.

This combination occurred just 35 times since the beginning of 1950, with 22 happening since 1996.  Our diagram reveals no discernible alignment indicating next day prices over the last three price expansions and two declines.

 Today, as on recent days, another Fed official released his opinion of what will be done about the open market purchases program that continues to support asset values.  Here the president of the St. Louis bank expressed concern that too high a rate of price inflation will result.  Actually, that is nothing new, since the St. Louis bank’s bias concern inflation is well known and long standing.

We note that this ongoing policy debate in the open is quite rare, for the Fed’s history reveals a predilection for holding its cards close to the vest.  Moreover, despite these statements, the interest rate on the ten year Treasury bond has moved higher on each of the last seven trading days.

DJIA            - .74 percent

NASDAQ     -.41 percent 

S&P500       -.52 percent

The up-then-down days of August went up today – the fourth direction change in nine trading days.  So far this month, the market has moved higher four times and declined on the other four days.

Further, today’s pattern -two consecutive gains for the NASDAQ and one advance for both the DJIA and the S&P500- as the diagram illustrates, occurs without any discernible constancy over bear and bull markets.

Meanwhile the Fed’s officials continue their contradictory comments.  Today’s, from the Atlanta Fed’s president, projects further easing and postponing any decline in bond purchases.  Yet, interest rates on the ten year Treasury bonds are moving higher, though in small increments.

DJIA             .20 percent

NASDAQ      .39 percent 

S&P500      .28 percent