Friday gave stocks a pregnant pause from the bear's down-swiping claws, but after a weekend to think about it, the bears resumed their relentless attack on equity values on Monday, getting its licks in before the SEC decides that short-selling is an act of terror, banned under the rubric of the Patriot Act.
The Dow Jones Industrial Average (DJIA) fell a 'big' 2.1% on Monday, closing the day at 11,131.08 in a 'trend day' decline where the average opened near the high of the day and closed very close to the low. The average is now down 2.9% over the last five trading days.
The S&P 500 index (SPX) also took it hard - dropping a 'big' 1.9% and closing at the low of the day in its trend-day decline pattern at 1,234.37, down 2.0% over the last five trading days.
The Nasdaq Composite (COMP) was also down 'big': 2.0% to close at 2,264.22.
Bonds benefitted. In a flight to safety, bond futures (CBT.US) rallied a 'big' 1.1% on the day, closing at 115 1/32.
Q: How have the equity indexes performed after the Nasdaq Composite index (NASD) and the Dow (DJIA) both lose more than 1.75% on either Friday or Monday on a day when there is a flight to quality into Treasury Bonds with the futures up more than half a point?
A:
S&P 500 - According to the 27 previous occurrences of this event, EventEdge indicates that SPX has shown a weak bullish edge that peaks 26 trading days after the event. Thus, the projected date for the peak of the bullish edge relative to the current event date (Monday, July 28, 2008) is Wednesday, September 3, 2008. SPX rallies in 78% of the cases (21 of 27) by an average of 7.0% relative to the close on the event date. The average of the six declines is 5.8%. The overall return of the 27 cases is 4.2%, which, based on the close of SPX on the event date (1234.37), provides a target price of 1286.21.
Nasdaq Composite - COMP has shown a weak bullish edge that peaks 23 trading days after the event. Thus, the projected date for the peak of the bullish edge relative to the current event date (Monday, July 28, 2008) is Thursday, August 28, 2008. COMP rallies in 75% of the cases (21 of 28) by an average of 8.4% relative to the close on the event date. The average of the seven declines is 5.8%. The overall return of the 28 cases is 4.9%, which, based on the close of COMP on the event date (2264.22), provides a target price of 2375.17.
Dow Jones Industrial Average - DJIA.A has shown a weak bullish edge that peaks 21 trading days after the event. Thus, the projected date for the peak of the bullish edge relative to the current event date (Monday, July 28, 2008) is Tuesday, August 26, 2008. DJIA.A rallies in 71% of the cases (20 of 28) by an average of 6.0% relative to the close on the event date. The average of the eight declines is 4.8%. The overall return of the 28 cases is 3.0%, which, based on the close of DJIA.A on the event date (11,131.08), provides a target price of 11,465.01.
Note - this is a redux idea - which we have published on several previous occasions. The most recent occurrence has not worked out as well - it fired off on June 20th and has been a downer. June 6th also saw a signal which hasn't paid off well either. History doesn't always repeat, but it often rhymes...
Gibbons Burke is editor of MarketHistory.com.
Related Ideas:
Stocks - The Smell of Fear Redux - April 14, 2008
Stocks - Flight to Quality - January 14, 2008
Stocks - The Smell of Fear Redux - September 10, 2007
Stocks - The Smell of Fear - April 18, 2005
Weekend Worries - February 5, 2002
Dow: Tell me why... I don't like Mondays - September 19, 2000
