S&P500 Closes Out the Week Near Unchanged Levels, Leaving a Long Tail on the Weekly Chart

This past week marked the second consecutive week that the S&P500 traded down
at least 4%. That’s the first time since 2002 we’ve seen such volatile action.
The last fifteen times the S&P posted back-to-back intraweek losses of at
least 4% are noted in the table below…

S&P500 -4% IntraWeek Two Consecutive Weeks
01/25/08… S&P500 ??? two weeks later
07/12/02… S&P500 -7.4% two weeks later
06/14/02… S&P500 -1.7% two weeks later
09/07/01… S&P500 -11.1% two weeks later
03/23/01… S&P500 -1.0% two weeks later
12/22/00… S&P500 -0.6% two weeks later
10/20/00… S&P500 +2.1% two weeks later
04/14/00… S&P500 +7.1% two weeks later
10/09/98… S&P500 +8.8% two weeks later
09/04/98… S&P500 +4.7% two weeks later
10/16/87… S&P500 -11.0% two weeks later
03/12/82… S&P500 +3.1% two weeks later
12/12/80… S&P500 +5.8% two weeks later
03/28/80… S&P500 +3.1% two weeks later
11/22/74… S&P500 -5.7% two weeks later
10/04/74… S&P500 +15.9% two weeks later

Note that in 11 out of 15 occurrences, the S&P gained or lost at least 3% over
the next two weeks, suggesting we’ll continue to see big swings heading into
the first week of February. It’s a dangerous time to be trading without a
definitive edge. And while indications suggest the market is in an
intermediate-term bottoming phase, I’d note that there are no actionable
setups on the board.

The weekly S&P500 chart suggests the potential for a bounce this coming week.
The S&P recovered from a 4% selloff to finish slightly positive, leaving a
long tail on the weekly bar. Historically, this type of action reflects
climactic selling pressure often found at intermediate-term bottoms. In the
table below I’ve extracted the last thirty instances in which the S&P traded
down 2% or more intraweek but finished the week +/- 0.5%. Note the general
theme of limited downside potential the following week. In only five cases out
of thirty did the S&P end down 1% or more, while it gained 1% or more sixteen
times…

S&P500 -2.0% Intraweek, Closes +/- 0.5%
01/25/08… S&P500 ??? next week
08/31/07… S&P500 -1.4% next week (*)
08/17/07… S&P500 +2.3% next week
06/16/06… S&P500 -0.6% next week
05/14/04… S&P500 -0.2% next week
03/26/04… S&P500 +3.0% next week
03/14/03… S&P500 +7.5% next week
11/01/02… S&P500 -0.7% next week
06/28/02… S&P500 -0.1% next week
07/27/01… S&P500 +0.7% next week
12/22/00… S&P500 +1.1% next week
11/17/00… S&P500 -1.9% next week (*)
06/19/98… S&P500 +3.0% next week
11/14/97… S&P500 +3.7% next week
07/26/96… S&P500 +4.2% next week
04/08/94… S&P500 -0.2% next week
09/24/93… S&P500 +0.8% next week
05/13/88… S&P500 -1.5% next week (*)
11/06/87… S&P500 -1.9% next week (*)
02/27/87… S&P500 +2.3% next week
02/13/87… S&P500 +2.1% next week
01/02/87… S&P500 +5.0% next week
06/13/86… S&P500 +0.7% next week
08/12/83… S&P500 +1.1% next week
02/18/83… S&P500 +1.2% next week
01/28/83… S&P500 +1.1% next week
08/13/82… S&P500 +8.8% next week
02/26/82… S&P500 -3.3% next week (*)
11/20/81… S&P500 +2.8% next week
06/05/81… S&P500 +1.0% next week
05/15/81… S&P500 -0.6% next week

TICKscore closed at +3 Friday as institutions remained better buyers. That’s
the fourth consecutive session of positive TICKscore readings, yet it’s
noteworthy that the S&P has so far managed only a meager 5-point gain. If NYSE
TICK action remains positive on Monday and the market doesn’t rally, it would
be hard not to draw comparisons to the January 9th-15th period when
consistently positive TICK action also failed to lead to higher prices. That
was a sign of unusually ‘heavy’ conditions, which led to a quick 100-point
drop in the S&P over the next week.

The latest commitments of traders data has taken a bearish turn. Combined
NASDAQ commercials (standard and emini contracts weighted and combined)
reduced their exposure significantly, from 19,000 contracts to 4,000. Also,
wrong-way large traders in e-mini S&P futures shifted to a net long position
for the first time in nine months (see my 5/21/07 column for a recent
discussion of large trader activity.)

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

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