USMarketView

Both the NASDAQ and the S&P500 recovered more than their day before declines. While the DJIA advanced, it failed to return to its previous level.

We note today’s wide performance disparity in these three averages: the S&P500’s gain is twelve times that of the DJIA.  This magnitude though is far from unusual and, it can be argued, that large differences indicate higher prices are ahead.

During the last bear market, the largest daily S&P500 to DJIA price change ratio came to 34; it was 24 during the 2000/2003 decline.

In sharp contrast, this number has been over 500 in the current expansion; while much smaller, at just 77 in the 2003/2007 expansion and 261 between 1995 and 2000, these ratios are several times larger than the bear market numbers.

Yet despite these wide disparities, the median S&P500/DJIA daily price change ratio is not very different from one, meaning that most of the time the performance of these indices is near identical.

Nevertheless, the median has grown, rising from 1.01 in the 1995/2000 expansion to 1.11 since the last bottom in March 2009.

Bottom line, though, the huge difference between the S&P500 and DJIA gains is consistent with changes that have occurred in the past when prices were moving higher.

DJIA                 .07  percent

NASDAQ         1.25  percent

S&P500             .88  percent

While the decline continued on to its second day, the drop was less severe than the day before. The DJIA’s fall equaled just 3/5^th, the S&P500 proportion was 71 percent and even the deeper NASDAQ decrease came to only 84 percent of the previous decline.

Two down days in a row have occurred 265 times over the past five price cycles. They are slightly more common in bull markets -6.2 percent- than the 5.8 percent rate during declines.

That allows some relief, at least, from the automatic fear common at market highs that prices are bound to retreat.

A further positive interpretation arises from the fact that today’s losses approximate the median losses experienced during bull markets. For example, the median S&P500 decline on the second loss in a row comes to -.73 percent during expansions. That is quite close to today’s minus -.67 percent; which in turn is far smaller than the -1.38 percent median S&P500 loss during the last two bear markets.

The same conclusions apply to the DJIA and the NASDAQ. Today’s DJIA loss of    -.56 percent is not only smaller than the -.66 percent median bull market loss but less than half of the -1.15 percent median bear market loss.

The NASDAQ proportions are -1.20 percent today, -1.09 percent bull market and       -1.20 percent bear market median declines.

These comparisons allow the suggestion that the market remains in an upward bias mode.

The outlook for tomorrow is not as favorable. In the past advances happened about as often as declines in good times as well as when prices were heading down.

DJIA                 -.56  percent

NASDAQ         -1.20  percent

S&P500            -.67  percent

Prices dropped sharply, with the S&P500 giving back yesterday’s entire gain. The NASDAQ loss was even deeper, giving back -1.84 percent after adding 1.50 percent the day before.

At the closing bell, the DJIA was off  -.94 percent, the NASDAQ fell -1.84 percent while the S&P500 lost -1.43 percent. While deep, these declines are not that rare. The last five up-and-down price cycles  have seen 315 days with losses this deep and deeper,  amounting to about 10 percent, or one of every 10 trading days.

These deep losses occurred far more often during price declines than when prices were trending up. They amounted to 20 percent of all closes during the 2007/2009 decline, and 14 percent when prices fell between 2000 and 2003.

In contrast, such losses came to 2.4 percent in the 2003/2007 bull market and 4.9 percent in the previous recovery. Indeed, while that rate has risen to almost 6 percent since the last, 2009 bottom, it nevertheless remains far below the double-digit numbers experienced during the previous market declines.

Though analysts are refreshing fears of an impending market top –and these are logical with prices at all-time highs- so far, at least, this record remains consistent with the profile of a bull market.

As for tomorrow, in the past, prices have risen the day following losses as deep as today’s more often than they declined. Further, these gains happened even during bear markets.

One final thought: earlier we had a stream of up and down days; these continued for more than two weeks but prices changes were quite small. Now, over the past three days, the market has revealed moves that could parallel those previous seesaw days but with substantial price instability.   

DJIA                 -.94  percent

NASDAQ         -1.84  percent

S&P500           -1.43  percent

Prices recovered some 60 percent of their day before losses, and seemingly restored stability after the year’s largest sell off . . . and the vicious Boston Marathon bombing.

We focus on three features

Three features of today’s market action indicate strength, demonstrating that buyers are establishing long positions, rather than joining a down heading escalator.

First, consider that today is only one of  33 positive closes following a S&P500 loss deeper than (yesterday’s)  -2.30 percent . . . in the 3,300 some trading days since the beginning of the 1996 expansion.

Second,  today’s  gain recovery rate of yesterday’s loss is 62 percent. Only nine days  that managed to achieve that high a recapture level.

Third, the recovery rate of the DJIA is 60.3 percent and the NASDAQ’s gain of 63 percent are similar

Finally, consider the diagram that locates these days. Five of these events occurred near bottoms, before prices rebounded, whereas two happened prior to substantial declines. Yet today’s event, up there at the end of a long surge, does seem vulnerable.

DJIA                1.08  percent

NASDAQ          1.50  percent

S&P500           1.43  percent

Extensive losses ended the second negative day in a row. The NASDAQ’s fall of   -2.38 percent ranks as the 301^st worst, of the nearly 2,000 declines over the last five price cycles. Yet the S&P500 loss ranks even worse – its  -2.30 percent stands as the 142^nd deepest.

Considering  the magnitude of these losses further, note that the median S&P500 losses for two back-to-back declines over the last three bull markets were  -.77 percent, -.63 percent and -.98 percent –significantly smaller than today’s deep -2.30 percent.

Indeed today’s beating is harsher than the median S&P500 losses for the last two bear markets; these were just -1.37 percent and -1.44 percent

While two losses in a row are not frequent, today’s is the third happening since mid-February. Moreover, history shows a further pessimistic outlook for tomorrow. In the past, losses occurred as often as recoveries on the following day.

Today’s diagram illustrates how frequently two losses in a row have occurred over the last five price cycles. It reveals also that these happen more often during bear episodes than when prices are trending up.

DJIA                – 1.79  percent

NASDAQ       -  2.38  percent

S&P500        -  2.30  percent

After four straight advances, prices declined a bit – with the DJIA’s mark down so slight, its change came to zero percent.

As discussed yesterday, prices rising four straight days in a row occurred just 27 times over the last four price cycles since 1996, and further, the following days saw as many losses as gains.

Today’s diagram identifies these closes and indicates the direction of price changes for tomorrow. The odds for higher valuation on Monday are slightly better than even, with the DJIA and the NASDAQ history showing a ratio of 8:5 for increases.

The S&P500, as shown in the figure, though has seven gains and six losses, with twice as many declines as advances in the current, since 2009, expansion.    

DJIA                   .00  percent

NASDAQ         - .16 percent

S&P500           - .28 percent

More meaningful than the small advances that pushed the DJIA and the S&P500 to new highs is today’s fourth advances in a row. With only 36 earlier closes over the last four up-and-down price cycles, 33 occurred during expansions.

Clearly this configuration is a bull market singularity.

Our diagram plotting these days reveals none happening during the 2007/2009 bear market; we see only three while prices fell during the 2000/2003 contraction.

With the market topping new highs almost daily today’s closing pattern provides some statistical support for the view that the future will see higher prices.

As for the following day, not surprisingly declines outnumber further advances. Yes, prices fell on all the next days during the 2000/2003 decline; however, the number of advances equals the total of losing days during the three expansions.

DJIA                  .42  percent

NASDAQ          .09 percent

S&P500            .35 percent

The market’s new highs is the eye catching news, of course, but focus also on today’s gains. They are the largest one day advances since the first trading day of the year.

Yet  such increases are far from rare: 265 have occurred in this century. These account for almost eight percent of all trading days since the beginning of 2000.

Strangely enough, though, these combinations happened more often in bear markets, accounting for 12 and 13 percent in the last two major declines.

The 2003/2007 expansion rate is only 3.7 percent, while they amount to 6.4 percent of all closes since the March 2009 bottom.

Today’s pattern of three straight advance is the 75^th repeat in this century. In the past, the following day saw just about as many declines as gains.

DJIA                   .88  percent

NASDAQ         1.83 percent

S&P500           1.22 percent

Finally prices moved in the same direction two days in a row – after 13 consecutive closes when prices shifted direction from the day before.

But today’s focus is on the DJIA and its record breaking close at 14559.42. Our diagram shows its high energy growth, since mid-2011, occurring in three distinct waves. It has a distinct profile, quite unlike the value profile of the previous two bull markets.

In 2000, prices were heading down at this stage while in 2007, the market was approaching the weakness that shut down that expansion.

Can the market sustain and continue this escalation? While sharp, this growth cycle is still young; there have been 1,025 trading days since the 2009 low. The 2000 expansion ended after 1,059 days while the last bull market lasted 1,154 trading days.

DJIA                   .41  percent

NASDAQ          .48  percent

S&P500            .35  percent

Positive views remain plausible even as the seesaw persists, and now totals thirteen straight days. Consider the total  S&P500 change over this stretch of 13 days; its total advance is positive; it comes to .28 percent. Our diagram reveals how it has slowed since March 20, when the up-then-down began.

Nevertheless, these rates remains positive, and taking the .28 percent as a target, note that 38 percent of all days in this expansion had lower advance rates. Further, this proportion is near identical with the previous two expansions, when it averaged 40 percent. Finally, and in contrast, the 13 days rate of change averages for the two bear markets in this century are 62 and 68 percent.

While these data confirm a slowdown, they do not yet signal an end for this growth of values.

DJIA                   .33  percent

NASDAQ           .57  percent

S&P500             .63  percent