As you know, in recent months I have been tracking the S&P 500 index as it has descended into a classic “Bear Market” trade down that appears remarkably similar to the nearly 50% selloff that it experienced in the wake of the “dot-com” bust.
But aside from technical similarities (that I will cover again in a later “Twin Peaks” post) I would like to share an interesting chart that I whipped up in an attempt to better reveal the trend and volatility inherent in the broad index and more importantly, the role volatility plays in signaling a bottom to a market selloff.
One important aspect to consider before delving into the chart is the true temperament of the bottoming process.
Reflecting a bit on markets and human nature, I believe that any real bottoming to the stock market must come with some significant struggle between market participants in an effort to establish value.
Unlike the current Wall Street consensus, I don’t believe that this struggle can take place in just a few trading days and further be founded on just a few key events, even substantial events such as the Bear Stearns debacle.
I see the market bottoming process as a prolonged and uncertain fight resulting in significant thrashing about, lasting at least as long as it takes to establish some “real” confidence about the outcome of the crisis that initially brought about the contraction.
In order to better visualize this market struggle I created two simple indices, one that plots the positive percent change of consecutive trading days and one that plots the negative.
So, for the “positive” index I add up the percent change on consecutive “up days” and if there is a “down day” the index goes back to 0.
For the negative index, on the other hand, I sum the percent change of consecutive “negative” “down days” and set it back to 0 if there is an “up day”.
Along with these indices I plot a 30 day moving average of each as well as the S&P 500 index itself.
This chart starts in 1969 and is simply huge (but loads well in the browser) so click the following to load it up and make sure it zooms in completely.
Notice, scrolling from left to right (1969 to today), that there have been six recessions in the U.S. since 1969 (indicated by the rectangular overlays) and that in general, the distribution of consecutive up and down days becomes more erratic and amplified during (and surrounding) the recessionary periods and noticeably more quite in-between.
Notice also that between 1992 and 1996 there was fairly even and essentially quiet trading leading into the dot-com boom but then the trading became markedly more volatile, eventually leading to the crescendo of the dot-com peak.
After the peak was established in 2000, the volatility continued only to be amplified dramatically during 2002 to early 2003, the period that would ultimately establish the bottom of the market downturn.
Now, study the period between 2004 and the middle of 2007 which appears to show very low volatility somewhat similar to, if not even a bit more quiet than, the period that preceded the dot-com boom.
Today though, the volatility has reappeared but it’s important to note that it is very new and still fairly low.
So, my contention is simply that the S&P 500 has not bottomed as the REAL struggle has yet to even take place and given the truly immense nature of our latest crisis (housing, mortgage, credit and consumer), it is altogether likely that we will see a considerable amount of thrashing and volatility resulting in a prolonged trade down that will last at least until there is some “real” confidence established.
Hitting a “B” instead of an “M”!… HUH?!
Today, the Federal Reserve released their monthly read of industrial production showing simply stunning declines to the aggregate production and widespread declines across many industries, particularly those related to consumer spending, construction and business vehicles, resulting in a significant year-over-year decline to the total index of 9.98% as compared to January 2008 and a 1.82% decline since December 2008.
“Final product” consumer durable goods continue to show weakness falling 28.56% as an aggregate on a year-over-year basis, with particularly significant declines coming specifically from home appliances, furniture and carpeting which declined by 21.86% on a year-over-year basis.
Subtitle: The (Suckers) Rally Has Left the Building?
What follows below is now just maintained for old times’ sake… the second peak was obviously real and this series of posts identified it roughly a year ahead of time.
So, today we bounced off of the dot-com bear market closing low of 776.76 (occurred on 10/10/2002 with an intraday low of 768.63) on the S&P 500… will the rally hold?
This post is a follow up and further elaboration showing the current and historical values for some key interest rates.
Let me be the first to give a cheer for the Invisible Hand! … Hip Hip Hooray!... You go Hand!
Subtitle: The Big One?
Home Prices, Home Sales, Housing Permits, Jobless Claims, Unemployment Rate, Foreclosure Rate, Stock Market, Consumer Confidence, Homebuilder Sentiment, Food Stamp Rolls, Manufacturing Activity, Industrial Production, Retail Sales, Auto Sales are ALL going in the wrong direction… Does anyone still question that we are in recession?
Following up on a prior post, take a look at the trend and most recent state of the S&P 500 index and compare it to the last major bear market conditions that followed the dot-com bust.
As you know, in recent months I have been tracking the S&P 500 index as it has descended into a classic “Bear Market” trade down that appears remarkably similar to the nearly 50% selloff that it experienced in the wake of the “dot-com” bust.
Notice, scrolling from left to right (1969 to today), that there have been six recessions in the U.S. since 1969 (indicated by the rectangular overlays) and that in general, the distribution of consecutive up and down days becomes more erratic and amplified during (and surrounding) the recessionary periods and noticeably more quite in-between.
Following up on a prior post, take a look at the trend and most recent state of the S&P 500 index and compare it to the last major bear market conditions that followed the dot-com bust.
Following up on a prior post, take a look at the trend and most recent state of the S&P 500 index and compare it to the last major bear market conditions that followed the dot-com bust.
Although I don’t usually comment directly on the stock market or stock indexes and generally limit observations of individual stocks to those that are related to housing and real estate, I thought I might share some basic analysis that I have worked up concerning a pretty grim looking topping pattern now present in the S&P 500 index.