Buyers Usually Near a Short-term Exhaustion Point after Seven Days of Positive TICKscore Readings

Volatility fell Wednesday in typical fashion for an FOMC announcement day,
with the VXO settling off 4% from the open and 1% overall. Tuesday’s uptick in
volatility proved to be a good hint that today’s rally try wouldn’t stick.

New 52-week highs failed to expand on either exchange despite higher highs and
higher lows for the S&P and NASDAQ, signaling a lack of participation during
the post-FOMC breakout. On the other hand, new 52-week lows expanded early in
the session even as the averages held Tuesday’s lows, suggesting an
undercurrent of weakness.

NYSE TICK action remained generally positive Wednesday. TICKscore closed at
+12, its seventh consecutive session in positive territory. I went back to
when our database of TICKscore data began in 2001 and noted each instance when
we initially saw seven consecutive positive readings. Typically, the market
was trading at a higher level 1-2 weeks later. But it’s noteworthy that on a
short-term basis, seven straight positive readings has also meant buying power
is usually near a short-term exhaustion point. Out of 22 separate cases since
2001, all of which are noted in the table below, the S&P was meaningfully
higher only twice by the time TICKscore closed in negative territory. Usually
this occurred within a few days, suggesting we could see institutional buying
pressure fade short-term. Over the past five years, it’s generally paid to
wait for that first day with persistently negative NYSE TICK action before
looking to hop on the underlying trend.

TICKscore Closes Positive Seven Consecutive Sessions
01/30/08… S&P ??? when TICKscore negative
04/20/07… S&P -0.2% when TICKscore negative (1 day)
04/05/07… S&P +0.1% when TICKscore negative (1 day)
02/05/07… S&P +0.2% when TICKscore negative (2 days)
01/04/07… S&P -0.6% when TICKscore negative (1 day)
12/06/06… S&P -0.4% when TICKscore negative (1 day)
11/22/06… S&P -1.7% when TICKscore negative (2 days)
09/28/06… S&P +2.9% when TICKscore negative (21 days)
09/01/06… S&P -0.8% when TICKscore negative (2 days)
01/06/06… S&P +0.1% when TICKscore negative (4 days)
06/21/05… S&P -1.1% when TICKscore negative (2 days)
05/24/05… S&P -0.3% when TICKscore negative (1 day)
02/02/05… S&P -0.1% when TICKscore negative (5 days)
11/17/04… S&P -1.0% when TICKscore negative (2 days)
10/06/04… S&P -1.0% when TICKscore negative (1 day)
08/04/04… S&P -1.6% when TICKscore negative (1 day)
07/19/04… S&P -0.6% when TICKscore negative (2 days)
11/04/03… S&P -0.1% when TICKscore negative (1 day)
10/07/03… S&P -0.5% when TICKscore negative (1 day)
09/04/03… S&P -0.5% when TICKscore negative (3 days)
05/30/03… S&P +1.3% when TICKscore negative (6 days)
05/06/03… S&P -1.5% when TICKscore negative (9 days)
04/04/03… S&P -1.2% when TICKscore negative (5 days)

One thing the market has working in its favor is the fact that the S&P often
reverses and closes higher the day after settling lower on a Fed day (see my
5/10/06 column). Today’s session was particularly unique in that despite
closing lower, the S&P posted ‘higher lows’. I went back to 1996 and noted
each instance when the S&P closed lower on an FOMC announcement day but
managed to hold the previous day’s low as it did today. In most cases the
market turned around and pushed higher over the next couple of sessions…

S&P500 Down on Fed Day, Posts Higher Low
01/30/08 Down day… S&P ??? two sessions later
06/28/07 Down day… S&P +0.9% two sessions later
11/01/05 Down day… S&P +1.4% two sessions later
05/03/05 Down day… S&P +1.0% two sessions later
11/10/04 Down day… S&P +1.8% two sessions later
06/27/01 Down day… S&P +1.1% two sessions later
01/31/01 Down day… S&P -1.2% two sessions later
08/22/00 Down day… S&P +0.7% two sessions later
02/02/00 Down day… S&P +1.1% two sessions later
10/05/99 Down day… S&P +1.3% two sessions later
05/18/99 Down day… S&P +0.4% two sessions later
03/30/99 Down day… S&P -0.5% two sessions later
09/30/97 Down day… S&P +1.4% two sessions later
03/25/97 Down day… S&P -1.9% two sessions later
09/24/96 Down day… S&P +0.0% two sessions later

Categories : Archived EOD Commentary, End-of-Day Commentary

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