USMarketView

While declines continued, losses were modest and far smaller than yesterday. The DJIA fell only -.19 percent, only a tenth of the day before.

The outlook for tomorrow, based on the history of two losses after a positive day, favors an uptick. But the margin is small, with 54 percent gaining and 46 percent declining. Further, most of the plus days happened during the 2003/2007 bull market; the current, since March 2009 up phase shows no trend, with slightly more losses than gains on the following day.

Meanwhile our diagram reveals this price recovery is on track with the last bull market. Currently 915 trading days since its last, March 2009 bottom, the S&P500 continues to parallel the 2003/2007 rise which turned down after 1,154 days of expansion.

DJIA                                                 -.19 percent

NASDAQ                                          -.29 percent

S&P500                                            -.31 percent

October 23, 2012                   Another Rare Close, with an Encouraging Past 

Today’s market combines a rather modest NASDAQ loss of -.88 percent with a substantial, -1.82 percent DJIA decline, a result seen just 13 other times in this century’s 3,000+ closes. The good news is that surging prices almost always followed these deep losses. Indeed two signaled the 2003/2007 bull market. Another two became early forerunners of the 2009 recovery, while the four happenings in the 27 trading days between October and November of last year presaged the significant climb that lasted to last July.

But the ride was not smooth. While the NASDAQ advanced 11.4 percent between the highs of last October and June 21, 2012, it first dropped 8.1 percent in the 27 trading days from October 18 to November 25, 2011.

One final note: today’s S&P500 still stands 6.6 percent above this June’s top, while the DJIA remains 4.2 percent higher and the NASDAQ is up 2.3 percent despite the many recent losses.

DJIA                                                 -1.82 percent

NASDAQ                                          - .88 percent

S&P500                                            -1.44 percent

Today’s market combines a rather modest NASDAQ loss of -.88 percent with a substantial, -1.82 percent DJIA decline, a result seen just 13 other times in this century’s 3,000+ closes. The good news is that surging prices almost always followed these deep losses. Indeed two signaled the 2003/2007 bull market. Another two became early forerunners of the 2009 recovery, while the four happenings in the 27 trading days between October and November of last year presaged the significant climb that lasted to last July.

But the ride was not smooth. While the NASDAQ advanced 11.4 percent between the highs of last October and June 21, 2012, it first dropped 8.1 percent in the 27 trading days from October 18 to November 25, 2011.

One final note: today’s S&P500 still stands 6.6 percent above this June’s top, while the DJIA remains 4.2 percent higher and the NASDAQ is up 2.3 percent despite the many recent losses.

DJIA                                                                                                    -1.82 percent

NASDAQ                                                                                            - .88 percent

S&P500                                                                                              -1.44 percent

Values remained just about unchanged from Friday even though the DJIA, the NASDAQ and the S&P500 closed with gains – for the S&P500’s appreciation was just .04 percent! An occasion so rare that it beat only 87 of the other 1700 positive increases in this century. Similarly, the DJIA’s plus .02 percent exceeded just 37 positive smaller gains.

The NASDAQ, however, added .38 percent, not much of a change yet a result large enough to rank as the 464^th biggest since January 2000.

On the following days, in the past, prices moved higher as often as they declined. Yet the average daily decrease during bear markets was far deeper than when prices were trending higher. Similarly, price increases during the bear phases exceeded the typical gain during the two bull markets of 2003/2007 and 2009 to date.

DJIA                                                                                             .02 percent

NASDAQ                                                                                    .38 percent

S&P500                                                                                      .04 percent

In this century’s 3,000+ trading days, only 157 declines are deeper than today’s –and what’s scarier–  109 are part of the last two bear markets. Our diagram reveals only nine such closes over the 2003/2007 expansion; these account for less than one percent of all trading days during that period when prices were climbing to new highs.

Yet their recurring incidence in the ongoing recovery since the last bottom of March 2009 tends to ameliorate the near obvious conclusion that the current market is heading for a correction if not a free fall. So far near four percent of the S&P500’s  sessions since March 2009 suffered losses worse than today’s.

Further, an optimistic interpretation can focus on the timing of these recent repeats. The diagram clearly shows that they cluster at the bottom of declines. Accordingly, an equally valid but optimistic interpretation is that they reveal upcoming price increases rather than signaling further depreciation.

Clearly that has happened so far, with these substantial retreats creating uncertainty before prices recover and surpass previous intermediate highs.

This identical structure characterizes also the following day: while only 42 percent of the next day closes are higher, two-thirds happen during periods of expansion.

DJIA                                                                                                                   -1.52 percent

NASDAQ                                                                                                           -2.19 percent

S&P500                                                                                                             -1.66 percent

The markdowns of  the DJIA, the NASDAQ and the S&P500 after yesterday’s gains yields a -1/-1/-1 pattern, a frequent combination seen some 483 days in this century. While this numerous history provides firm statistical support for projecting tomorrow’s closes, unfortunately, in the past, the following day is split just about evenly between a further gain and a loss.

While advances outnumber declines, they account for just 55 percent of the next day closes.

We draw attention to a further inability, to sort these happenings by bear and/or bull periods. While they accounted for 14 percent of the 2000/2003 decline days, these increased to 17 percent in the following recovery, and then to 19 percent in the 2007/2009 drop. However, since then the frequency comes to just 13 percent.

DJIA                                                                                                             -.06 percent

NASDAQ                                                                                                   -1.01 percent

S&P500                                                                                                      -.24 percent

The market continues to chart new parameters as it unravels a continuing flow of unusual and infrequent daily patterns. That process diminishes our ability to model current price developments on the past.

Today’s close of four straight DJIA advances combined with three up days for the NASDAQ and the S&P500 has just one precedent – and that was at the beginning of 2001.

Obviously too far away, and not enough repeated days, to provide a semblance of a statistical comparison. So we step away, for today, reporting but not projecting.

DJIA                                                  .04 percent

NASDAQ                                           .10 percent

S&P500                                             .41 percent

The DJIA led the way, increasing for the third straight session while the S&P500 and the NASDAQ repeated yesterday’s plusses. Yet the recent pattern of ‘rare’ or infrequent patterns continued, with today’s occurring just six previous times in the past 13 years.

More significant, moreover, is that two of these happened as recently as September 10 and July 30 of this year, with prices falling on the following day.

DJIA                                                  .95 percent

NASDAQ                                         1.21 percent

S&P500                                           1.03 percent

After six straight declines, the NASDAQ and the S&P500 managed to edge higher; the DJIA scored its second positive day, but note that its earlier up tick amounted to just  .02 percent. Yet the outlook for tomorrow is uncertain, since in the past, the day following this pattern turned up just about as many times as it turned down.

This is the fifth repeat of this pattern in 2012; the last one on September 19 and the first happening in April. Prices moved higher on three of the next days, falling twice.

Our diagram locates these closes for the S&P500. It shows almost no consistency, with most of these days happening during the 2000/2003 bear market and since March 2009, during the current bull phase.

DJIA                                                                                      .72 percent

NASDAQ                                                                              .66 percent

S&P500                                                                                .81 percent

The S&P500 closed up for the first time in five days, but the gain amounted to just .02 percent. The DJIA fell again, for down day number 4, closing  -.14 percent down, while the NASDAQ declined for the fifth successive day, off a mere -.08 percent.

The resulting pattern –plus 1 for the S&P500, minus 4 for the DJIA and minus 5 for the NASDAQ- happened just once before, almost 20 years ago, on March 9, 1992. Obviously, that is too far away, and with too few data points to warrant any projections.

It is troublesome, furthermore, to see so many ‘atypical’ patterns closes, without an explanation at hand.

Yet a confidence factor based on recent history provides a stabilizing peg: the current recovery from the 2009 low parallels the last one, from 2003 to 2009. Certainly, it is not just keeping pace but the recent price trajectory is somewhat earlier and larger.

DJIA                                                 -.14  percent

NASDAQ                                          -.08 percent

S&P500                                             .02  percent