Well, the Christmas Rally we discussed on Monday and Tuesday has finally arrived.

Indeed, like the NY Knicks, the Markets have finally pieced together two consecutive winning days.

Since the decline that began on October 30th, the
S&P 500 has gone 19 days without having more than one winning session in a
row.

I have been following this ever since my friend Paul first asked about what the failure to have two consecutive back-to-back winning days actually means. I was speaking with Mike Panzner about this earlier in the week. Mike noted:

The longest such streak (since 1999) was the 24-day run that ended
on 9/21/01. The second longest streak was 22 days, which ended on 3/21/01. There
have been two other streaks of 21 days each, ending on 10/3/00 and 4/29/02,
respectively.

Except for the post 9/11 streak, which marked a climactic
V-bottom low in the equity market, other spans seemed to define the first
leg of a downdraft that "paused" for anywhere between 4 and 14 days before it
resumed.

Visually speaking, the pattern that developed when those prior
one-day-wonder streaks ended was a "flag," which in technical analysis terms,
often implies that a move — in this case, the downtrend — is about half-way
over. 

For what it’s worth, the same also holds true for the two shorter
streaks of 16 days that ended on 1/28/03 and 4/1/05, respectively.

Based
on past history, then, it seems that once the current streak ends ( i.e., we see
two or more winning sessions in a row), the risk is that it won’t be long before
the market begins another push lower.

I would add one item to Mike’s comments:  The wild swings in the markets, +/- 2%, with violent up 200 or 300 point days  don’t typically come in healthy Bull markets — these spasms are symbolic of  Bear markets.

Category: Contrary Indicators, Investing, Markets, Trading

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

28 Responses to “Market’s Back-to-Back Streak”

  1. michael schumacher says:

    the last comment speaks more to any of the prior…

    Keep the following in mind:

    December 15th (payable on Dec 14th) is bonus day for the criminals
    December 11th is Fed day

    See any potential conflicts with that?

    Ciao
    MS

  2. super-anon says:

    Take a look at the dive in the Yen. Looks like some big money speculators decided to go to the Bank of Japan and borrow enough to goose the market into a big short squeeze and keep kicking it in the pants everytime it starts to run out of steam.

    I’d certainly do the same thing if I had that kind of capital.

  3. OldVet says:

    Short squeeze? Don’t hedge funds with losses have to do something, anything, to recoup before 12/31? Quite a few desperate people with a lot to lose are churning an awful lot of other people’s money.

  4. I admire Mike Panzner for his uncanny ability always to find the fly in the ointment. It is truly amazing.

  5. michael schumacher says:

    Super Anon-

    with all the talk of cash problems I can think of only one place that has that type of capital to attempt that….much less be successful at it.

    Ho, Ho, Ho has a distinctively eastern flavor to it this time.

    Ciao
    MS

  6. R. Timm says:

    With all this talk of recession being likely and a bear market that may persist for another 18+ months does anyone have any mutual fund recommendations that are particularly suited to a economic downturn?

    At first I was thinking about secotr funds but when I did some research on Utilites funds and Health Care funds and found that most declined significantly during the last bear market. One fund I was impressed with was HSGFX a long-short fund that did exceptionally well during the 2001-2003 bear and maintained postive gains through the transition to a bull market.

    Anyone else have favorite funds for capital preservation? I have fled to the Vanguard Treasury Money Market but it is yielding less than 4% and rates are declining so I’m looking for a bit more return.

  7. GRG says:

    Sorry boys, looks like the turbulence is finally over. Bull market forever, baby. Let’s pop the champaign, good times are here again.

  8. Costa says:

    panzner said he was short term bullish, last night on kudlow

  9. muckdog says:

    One-day wonders do tend to be countertrend. But “wild swings” up and down in the market often happen at inflection points, where the market is about to change direction. And big moves up off of support can be healthy and a sign that the major trend is still intact. On monday, we were 1 point above the August lows on the SP500. (Closing basis).

    Warp speed, Mr. Scott. The correction *may* be over.

  10. peter from oz says:

    it’s only 2pm
    perhaps barry it won’t be long before we see days where the actual amplitude for the day could be 600pts
    if you piece all the individual comments above (particularly the 31/12 one) I have to ask the question
    what’s changed in the global financial services sector in 24hrs werner?
    libor and spreads still blowing out
    you can cut the fed rate to zero if you like (the japs did) but if the banks still won’t lend each other money what are they going to do to you
    another good selling day!!!
    rgds pcm

  11. michael schumacher says:

    touche’ Peter….

    10 year below 4
    libor above 5

    And we actually WANT a rate cut??…..staggeringly stupid

    Ciao
    MS

  12. a5 says:

    The QQQQs were once up 14% in Jan. during the time the Naz eventually went on to drop over 70%.

    The QQQQs were up over 2-4% on over 2 dozen occasions on the way down. Very very normal.

  13. michael schumacher says:

    nothing normal about it…..

    We did’nt have our banking system (and not only ours!) on the verge of insolvency in 2000. Stocks were over-valued but they were not pushed there with a raft of bad news (like this year) and a favorable carry trade.

    Nothing normal about total denial…

    Ciao
    MS

  14. Michael C. says:

    I vaguely remember this sort of volatility during 98 and 99, or am I wrong?

    In any case, until we close above 1490 for the week, we are still in a weekly downtrend, no matter how much we gain in a single day, at least according to my TA.

  15. Estragon says:

    Speaking of total denial,

    Kohn spake thusly:

    People should bear the consequences of their decisions about lending, borrowing, and managing their portfolios, both when those decisions turn out to be wise and when they turn out to be ill advised. At the same time, however, in my view, when the decisions do go poorly, innocent bystanders should not have to bear the cost.

    Just in case anyone didn’t understand that, he goes on to be more explicit:

    To be sure, lowering interest rates to keep the economy on an even keel when adverse financial market developments occur will reduce the penalty incurred by some people who exercised poor judgment. But these people are still bearing the costs of their decisions and we should not hold the economy hostage to teach a small segment of the population a lesson.

    (emphasis mine)

    So there. He thinks the evil-doers have been spanked enough already, so now the fed can go forth and multiply the currency.

  16. Juan says:

    MC,

    Temporary 1997-98 chart, and yes, lots of volatility:
    http://www.economagic.com/gif/g4024002130222164631364311874462366.gif

  17. David says:

    Barry,
    I told you there would be a “Miracle Comeback” for the Stock Market.
    Happy times are here again… I Guess!

    “They say miracles are past.”
    William Shakespeare

  18. erpij says:

    Yes, happy times. Of course not a single fundamental problem has been solved yet.

  19. TKL says:

    Estragon quotes Kohn’s statement that “lowering interest rates . . . will reduce the penalty incurred by some people who exercised poor judgment”, but that “innocent bystanders” should not be punished.

    Innocents will suffer unless the Fed cuts rates? How about all the innocents who behaved responsibly, did not overextend themselves with debt, and hold cash instruments? Will they not suffer when the Fed strips away their current modest returns? Remember, rates on money markets went to barely 1% a few years ago.

    Kohn also said that financial stability is best promoted, and moral hazard best avoided, by sticking to the dual mandate of price stability and maximum employment. That way, he said, “[a]sset prices will eventually find levels consistent with the economy producing at its potential, consumer prices remaining stable, and interest rates reflecting productivity and thrift.”

    Thrift?!?!!? These bastards have done nothing but reward reckless speculation and punish thrift, instigating one asset bubble after another, while slashing savers’ returns periodically to bail out the speculators. How dare this clown tell savers that their wealth is being destroyed in the name of innocent bystanders. The thrifty, the savers — they are the innocent bystanders. What a schmuck.

  20. JJL says:

    Gold and the dollar are not agreeing with the FED rate cut scenario. This is a recent change and I am not sure what to make of it. Any ideas out there?

  21. Snarky says:

    After Kohn spake, I got a 10 million loan on my retirement income, by using the collateral in my $100,000. house. Now I feel like an innocent bystander, so you guys pay up for me.

  22. Snarky says:

    I have decided to change my name to ” Innocent Bystander” that way if I go the wrong way in this market, I’m bulletproof.
    Thank You

  23. Winston Munn says:

    Don’t be too harsh on the Federal Reserve governors – after, all this is what they were taught and what they studied all those years….

    Of course, the Ph.D.s way back when who got their doctorates in “Sun orbits the earth” had the same problem getting their models to work.

  24. ken h says:

    Right on Snarky!

    Calling CW right now. Get me a sweet HELOC and spend baby spend. When I run out of cash I’ll mail my keys to the bank,..I’m an innocent bystander baby! Bail me out!

  25. TKL says:

    JJL,

    Not only did gold fall and the dollar rise, Treasury yields rose — and more at the short end than the long. Seems like an odd way for the market to express a newfound expectation of a lower Fed Funds rate.

    Perhaps this was not really a response to Kohn, but simply the rhythm of traders . . . a rebound from short-term extremes in selling and negative sentiment . . . a 50% retracement . . . a partial flight back from quality.

  26. Josh says:

    Market internals looked better today than yesterday, but it didn’t take much. Yesterday there was a 50/50 (80/20) split between advancing/declining issues (volume), but new lows dominated new highs by 200+ to ~30.

    Today’s advancing/declining issues and volume were both 80/20, but new lows outnumbered new highs by 100/50. That’s not very encouraging if you’re looking for a turnaround.

  27. et alli. says:

    From Credit Crunch to Trent Lott

    Quotes and Pointers I would add one item to Mike’s comments: The wild swings in the markets, /- 2%, with violent up 200 or 300 point days don’t typically come in healthy Bull markets — these spasms are symbolic of

  28. Greg Feirman says:

    This was an interesting post. It kind of helped me think about what last week’s rally meant.

    I guess William O’Neil and Barron’s Kahn are saying we need to see a follow through day (FTD) next week or the week after, up big on heavy volume, to confirm a change in trend.

    We’ll see.