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Much has been made in the press about the number of consecutive down weeks for the S&P 500. To look at frequency of occurrence of serial back-to-back down weeks, we built an indicator that counts the occurrence and plots a value of one each time a series of a specified length occurs.

Instead of focusing on the press saying the market is down X-weeks for the first times since Y-date, let's take a longer view.

In this chart, we show the S&P 500 weekly from January 1, 1980 through June 24, 2011 (29.5 years). In the lower panel is the index price chart. In the upper three panels is our indicator that prints a spike each time a series of a specific length has occurred. The lower of those three panels identifies series of 5 consecutive weeks down. The middle of the three identifies series of 6 consecutive weeks down. The top panel identifies series of 7 consecutive weeks down.

click images to enlarge

The plot shows that there have been two instances of 7 consecutive weeks down in nearly 30 years -- one in March 1980 and one in March 2001. The latter occurred shortly after a several month interval following a 6 week series in October 2000.

In fact the 2001 instance actually went on for 8 weeks, as shown in this expanded view of that time (and was followed by a partial recovery and a period of 18 weeks that gave it all back, and then some.

The plot shows that there have been ten instances of 6 consecutive weeks down in nearly 30 years. The eight that did not go on to be 7 weeks down were:

  • March 1982
  • February 1984
  • August 1990
  • October 2000
  • October 2002
  • July 2004
  • July 2008
  • June 2011.

In the case of the 2008 series, there was a one week relief followed by a major engulfing pattern decline which brought the time span to a short-term bottom to 8 weeks, as shown in this chart:

Also in 2002, a 5 week series was interrupted by a tiny up week and followed by 3 more weeks down, to cover a 9 week time span before a few up weeks occurred. Then 5 weeks later 6 week series developed, as shown in this chart:

To make things even more painful that series of 5 (early 8) followed by 6, was preceded by a period of 8 weeks of net decline (as seen above). That year was a nasty year, and that chart is a good demonstration of how long it hurt.

The 1998 Russian currency crisis did not make a "perfect" 5 or 6, but it is worthy of note as a major market event. The crisis hit in August of 1998 after the Asian currency crisis earlier. The S&P 500 went down for 4 weeks, took a 1 week breather and then went down 2 weeks more for a period of 7 weeks of net decline, as shown here:

The Asian currency crisis hit in July of 1997, but did not register on our 6 week and longer occurrence plot. However, preceding the Asian crisis the market went down for 5 consecutive weeks beginning in March of 1997.

In August of 1990, Iraq invaded Kuwait. Oil supply, among other things, was of great concern. At that time, the S&P 500 began a 6 week serial decline, that was followed by some minor ups, and a time span of 13 weeks of net decline, as shown here:

The October 1987 stock market crash only had three weeks down (a big one day down) with an ever so minor one week recovery, and then a 5 week serial decline -- total time span from top to bottom was 9 weeks, as shown here:

Looking at the current period, with its 6 consecutive weeks of decline (and its 8 weeks of decline time span with only a tiny up week breather) ranks itself with some pretty tough prior periods.

We think 8 weeks is a better way to think of this decline than 6, because the up week that broke the string went up only $0.52 (or 4/100 of 1%).

Given all the bad credit news and the event risk associated with both Greece and the United States, it's no wonder the market is off.

As we wrote this article on Sunday night June 26, the S&P 500 futures were off about 3 points at 1260 (a critical support level). If the index breaks that level (or perhaps 1250), there is likely to be a swift and potentially deep leg down.

In our discretionary accounts, we have large cash positions, that we expect to keep until the Greek and U.S. debt ceiling matters are more settled.

Disclosure: We do not hold SPY, IVV, VFINX or any other S&P 500 index fund in any discretionary account as of the publication date of this article.

Disclaimer: This article provides opinions and information, but does not contain recommendations or personal investment advice to any specific person for any particular purpose. Do your own research or obtain suitable personal advice. You are responsible for your own investment decisions. This article is presented subject to our full disclaimer found on our site available here.

Source: Number of S&P 500 Back-to-Back Weeks Down, Potentially Ominous Signal