USMarketView

With the successive up and down succession now past all records, consider the impact on prices, measured by the rate of change over the last twenty days. It has fallen, for the S&P500, from 4.46 percent just seven days ago to .57 percent today.

Our diagram compares these 20-day rates of change with the S&P500 prices for each day since March 2009, when the current recovery started.

So far there have been 51 closes with 20 day rates between .57 percent and zero.  The purple open diamonds identify these and show their incidents distributed just about equally over the current upswing.

Their frequency is about the same as during the 1998/2000 bull market but slightly more than half the rate of the 2003/2007 expansion.

DJIA                   -.32  percent

NASDAQ           -.66  percent

S&P500             -.44  percent

Prices have not moved in the same direction in more than two weeks. Today’s eleventh straight change is the first since 1981, more than 8000 trading days ago.

Our diagram provides a perspective by locating the 16 days when the S&P500 changed direction on eight or more days in a row.

The last previous time this happened was eleven years ago, at the beginning of the 2007/2009 bear market. Three other down-then-up runs occurred during the earlier, 2000/2003 decline.

The good news is that otherwise, these seesaws and rising prices happen simultaneously: six incidents are  seen during the bull markets of 1998/2000 and 2003/2007.

Contrary indications though result from considering market changes after these chains of daily ups and downs: seven, or nearly half, of these happenings preceded significant price declines.

DJIA                    .38  percent

NASDAQ            .20  percent

S&P500             .40  percent

With the sequence of down then up now in its ninth straight day, our analysis has not found an historical pattern. Indeed, there are only two previous occurrences, one in 2002 and the other in 1981.

Thus, while we wonder about the meaning of this price seesaw, we propose no explanation.

DJIA                  -.76  percent

NASDAQ       -1.11  percent

S&P500        -1.05  percent

Though the up-then-down rhythm continues for the eighth day, we call your attention  to the strength of the DJIA surge. Our diagram reveals its rapid and continuous advance; our table quantifies its power relative to previous growth segments.

Further, its recent history reveals significant strengthening in the rate of its daily  price increases.

Its average daily gain is .29 percent for the last 28 days – days when it closed above 14,000. That rate is almost three times the average gain for the 152 days when the DJIA closed between 13,000 and 14,000.

The table reveals the current escalation, as measured by the average daily change, with significantly more vigor than the earlier visit to the above 12,000 level during the 2003/2007 bull market. Moreover, this latest surge has stayed at these high levels for many more days than its stay.

Despite these superlative features, we have not found, so far, historical parallels indicating an end to this amazing price escalation.

DJIA                  .61  percent

NASDAQ         .48  percent

S&P500          .52  percent

With the DJIA as well as the S&P500 down today, the price see-saw has now completed its seventh cycle. An event so rare, it has happened just nine times in the past 64 years, six of which took place in this century.

Our diagram shows when the S&P500 fluctuations are limited to a sequence of three days: of a loss, after a gain that follows a loss. In the past, more of these three-day down-after up-after down events occurred during bear markets.

However, these sequences are evident during bull markets as well; clearly, this current chain following just after the DJIA and the S&P500 hit new, never before seen, highs proves this point.

Yet it does raise the question whether this sequence indicates that prices have reached, or are reaching, a temporary top.

The one historical fact that implies a leveling off is that this seesaw favors declines. They occurred 3.2 percent of all days during the 2000/2003 bear market; these increased to 5.6 percent in the 2007/2009 decline.

In contrast, the current upswing has seen just 2.6 percent such closes, while the 1997/2000 bull market had only 1.4 percent. However, the proportion during the 2003/2007 surge was a non-typical 3.8 percent – a rate higher than during the 2000/2003 decline.

DJIA                  -.04  percent

NASDAQ         -.87  percent

S&P500           -.45  percent

Headlines celebrating the DJIA’s advance fail to focus on the continuing saga of opposite daily price changes. And tomorrow’s closes will be down from today … if history repeats itself.

Declines outnumber gains 5:2 and 6:2 during the two bear markets of this century. Indeed the loss ratio is 9:6 in the 2003/2007 expansion. Increases exceed declines only in the current, since 2009, bull market, and then the ratio is just four increases to three losses.

Further reason for caution is the frequency of this pattern at turning points. It’s not just the six happening near the 2007 market top. Almost all of these days occur before, at or after prices change direction.

Attentiveness to this history deserves attention, even though this boom is still some hundred trading days short of the last bull market’s life.

DJIA                  .77  percent

NASDAQ          .53  percent

S&P500           .78  percent

Down after Friday’s gain, and down after Wednesday’s gain, means the market has changed direction four times in as many days. Today’s set is the 88^th such pattern in the more than 3,300 sessions in this century.

On the following day, prices moved higher slightly more often  than they declined: the ratio is 49 ups to  38 downs.

Disturbing, however, is the continuation of similarities between the 2000/2003 decline and the current, since March 2009 expansion. Next day prices declined more often than they increased in these two segments.

In the same vein, advances outnumbered declines during the 2003/2007 advance as well as during the 2007/2009 decline.

The widespread enthusiastic optimism spreading through the market and media is quite natural given the strength of the current recovery. Our diagram shows that the S&P500’s prices has more than doubled since its 2009 low, closing at 216 percent of that price. That’s substantially better than the 178 percent achieved at this point during the 2003/2007 expansion.

Given this robust performance at just 1,014 days of growth, while the previous cycle lasted 1,144 days, small wonder we’ve got rising enthusiasm and bullish expectations.

DJIA                -.44  percent

NASDAQ        -.30  percent

S&P500          -.33  percent

Like 221 previous days in this century, prices moved higher after yesterday’s losses. These gains, though, fell short of restoring all of those losses. Today’s analysis, however, focuses on the distribution of these days over the four distinct cyclical phases since the beginning of 2000.

The proportion of these days in the first down wave was 4.6 percent; the following up-market had 8.6 percent. The share in the next, 2007/2009 decline rose to 9.3 percent of all days, while the count in the current bull market is down to 5.4 percent.

This summary reveals an unusual parallel, in that the proportion in the first decline is similar to the proportion in   the current increase.  And, that the ratio in the early increase is close to the share in the second decline.   

Further, this pairing is not isolated. Today, as in the last three previous closes, frequencies in the first decline are near to those in the current increase.  

This creates a possible concern, in that we have used the parallels between proportions in the 2003/2007 advance and in the current bull market to infer that prices will continue to move higher.

Thus consistency and logic demand that similarities of the present market with those of the 2000/2003 decline requires projecting  declines for the future.

We continue to monitor and report on this possible problem.

DJIA                .51  percent

NASDAQ       .70  percent

S&P500         .72  percent

The market closed lower but losses were smaller than their average for this pattern. Only 11 other days in this century have this pattern of a decline following two gains by the DJIA but when the NASDAQ and the S&P500 moved up only one day.

Our diagram reveals this pattern happens without any consistency for rising or falling markets,  but that most of these days occurred during the 2000/2003 decline and also since the beginning of the current bull market.

History reveals a mixed outlook  for tomorrow, with prices declining a bit more often than rising.

DJIA                -.62  percent

NASDAQ        -.98  percent

S&P500         -.83  percent

It’s the distribution rather than its rarity that draws our attention to today’s close. Nine of the 26 closes occurred during the 2000/2003 bear market, while another nine happened in the, since March 2009, current bull market.

Further, today’s gains fall short of the average daily advance history of this combination. The DJIA gained .39 percent, whereas its mean for these days is plus 1.21 percent.

Then consider the enigmatic waves of these days: one stretches over the 2000/2003 decline, another lasts over a recovery and continues during the following decline, and the current run of two in 2011, six in 2012, and today’s and last month’s occurrences.

Finally, large percentage changes are the norm for, and dominate, the following days. With these ranging from minus 2.47 percent to plus 1.91 percent for the S&P500, and minus 4.40 percent to plus 2.87 percent for the NASDAQ, we pass on projecting what tomorrow will bring.   

DJIA     .39  percent

NASDAQ    .78  percent

S&P500     .67  percent