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Stock Market Trends

July 28, 2009

Roman Abramovich said “Investors have very short memories.”  So let’s look at the last 720 trading days of the DJIA…back to 3Q2006 and the last time the US economy was mathematically at stabilized equilibrium (i.e. TPSI = 500.0).

Based on some deep number-crunching we identified that…for the first time since July 2007…the DJIA registered three consecutive positive “Q Spreads.”  What the heck is a Q Spread?  It’s a very cool statistic we invented to diagnose whether a trend is sustainable.  Here’s what we did:

Analyzed every trading day for the DJIA since October 1, 1928…that’s 20,293 days of data.

Counted the number of days the DJIA went up or down from the previous trading day.

Examined these counts of ups and downs within “consecutive 30 day trading blocks” going back 81 years.

Categorized each trading day based on just how high or low each trading day went up or down into five buckets (i.e. quintiles).

Subtracted upper quintiles with lower quintiles. Positive numbers reflect a stronger market and vice versa.

So what did we find?  The first group of green shaded rows within the table below (March to July 2009) reflect the three most recent “30 day trading blocks” which realized three consecutive positive Q Spreads.  See column #14.  The last time this occurred was during (March to July 2007) which is illustrated by the second group of green shaded rows.  OK…I realize this sounds like an idiosyncratic statistic, but as you scan the table, you will see that this is good news.  At least for now.  And we can all use some good news.

30 Trading Day Blocks of the DJIA

Notes:

The Q Spread is our metric that adds the 4th and 5th quintile and subtracts the 1st and 2nd quintile.

We also conducted the same analytical process for the S&P 500 and NASDAQ Composite and realized similar results.

Our TPSI model leads the stock market by several months.  See Column 15 and 16.  TPSI  (1000 Point Strength Index) is the most comprehensive and precise market measurement tool of its kind.  500.0 is benchmarked as the mathematical stabilized equilibrium; historical figures and forecasts above or below 500.0 reflect relative strength or weakness, respectively.  The TPSI has the ability to track and forecast over 2,800 market indicators and capable of in-depth analysis, forecasting, and dynamic what-if analysis of macro economies, industries, organizations, product types, services, and competitive geographic market areas. Click here for an example.