When the NYSE McClellan Oscillator Exceeds +150 on Two Separate Instances Within a Five-Day Span

Thursday’s 3:1 positive breadth sent the NYSE McClellan Oscillator over +150
for a second time in the past three sessions. Readings over +150 are high from
a historical perspective (see long-term chart). It’s particularly interesting
when the Oscillator exceeds +150 on two separate occasions within a one-week
time frame. Typically, the second run from below +150 to above +150 coincides
within a short-term topping phase, and the S&P is usually trading flat-to-down
three days later…

McClellan Oscillator Exceeds +150 Second Time in Five Days
01/31/08… S&P ??? three sessions later
10/05/07… S&P +0.3% three sessions later
08/31/07… S&P +0.3% three sessions later
08/24/07… S&P -1.1% three sessions later
08/03/06… S&P -0.7% three sessions later
07/11/06… S&P -2.9% three sessions later
07/06/06… S&P -0.1% three sessions later
12/01/05… S&P -0.1% three sessions later
06/01/05… S&P -0.4% three sessions later
05/27/05… S&P +0.5% three sessions later
05/23/05… S&P +0.3% three sessions later
05/09/05… S&P -1.7% three sessions later
09/07/04… S&P +0.2% three sessions later
09/02/04… S&P -0.2% three sessions later
08/27/04… S&P -0.2% three sessions later
09/08/03… S&P -1.5% three sessions later
05/06/03… S&P -0.1% three sessions later
04/22/03… S&P -1.4% three sessions later
08/15/02… S&P +0.8% three sessions later (*)
03/06/02… S&P +0.5% three sessions later
01/03/01… S&P -3.8% three sessions later
01/07/00… S&P -0.6% three sessions later
04/21/99… S&P +1.8% three sessions later (*)
10/29/98… S&P +2.3% three sessions later (*)
09/28/98… S&P -5.9% three sessions later
09/22/98… S&P +1.5% three sessions later (*)
07/08/98… S&P -0.1% three sessions later
07/06/98… S&P +0.1% three sessions later
05/12/97… S&P +0.5% three sessions later
02/11/91… S&P -1.2% three sessions later

Out of 29 separate occurrences since 1990, only 41% led to a higher S&P three
sessions later, compared with 55% at-any-time odds. Since 2000 the limited
upside potential has been ever more noticeable, with only 33% of cases leading
to a higher S&P three sessions later.

Last week’s program trading report reveals only 33.9% of total program volume
was executed as principal, for member firms’ own accounts. It’s interesting to
note that we’re not seeing the kind of big spikes in program activity normally
associated with longer-term bottoming periods. Pull up this long-term chart of
principal program activity over the past decade for an illustration. Note that
after similarly large declines in the past, principal trading typically spiked
near 40% of total program volume. We’ve yet to see such a spike this time
around.

Thursday’s higher close triggered a second intermediate-term bullish setup, as
the S&P finished above Monday’s settlement when breadth also closed 3:1
positive. Historically, the S&P has a solid track record of continuing to move
generally higher in the two weeks following this setup. The last thirty times
this pattern has occurred are noted in the table below, beginning with the
date of the lopsided breadth session and the date three sessions later when
the S&P closed higher. The 80%+ win rate remains consistent throughout the
last 56 signals since 1995 (see full track record).

S&P500 Higher Three Days After 3:1 Positive Breadth
01/28/08-01/31/08 S&P up… S&P ??? two weeks later
11/28/07-12/03/07 S&P up… S&P -1.8% two weeks later
11/23/07-11/28/07 S&P up… S&P +1.2% two weeks later
10/05/07-10/10/07 S&P up… S&P -3.0% two weeks later
09/18/07-09/21/07 S&P up… S&P +2.1% two weeks later
08/31/07-09/06/07 S&P up… S&P +2.7% two weeks later
08/29/07-09/04/07 S&P up… S&P +2.0% two weeks later
08/22/07-08/27/07 S&P up… S&P +0.3% two weeks later
08/17/07-08/22/07 S&P up… S&P +1.0% two weeks later
07/02/07-07/06/07 S&P up… S&P +0.2% two weeks later
06/27/07-07/02/07 S&P up… S&P +2.0% two weeks later
06/13/07-06/18/07 S&P up… S&P -0.8% two weeks later
05/11/07-05/16/07 S&P up… S&P +1.1% two weeks later
05/02/07-05/07/07 S&P up… S&P +1.0% two weeks later
04/20/07-04/25/07 S&P up… S&P +1.1% two weeks later
03/21/07-03/26/07 S&P up… S&P +0.8% two weeks later
03/19/07-03/22/07 S&P up… S&P +0.6% two weeks later
03/06/07-03/09/07 S&P up… S&P +2.4% two weeks later
11/29/06-12/04/06 S&P up… S&P +0.9% two weeks later
10/12/06-10/17/06 S&P up… S&P +1.0% two weeks later
10/04/06-10/09/06 S&P up… S&P +2.0% two weeks later
09/12/06-09/15/06 S&P up… S&P +1.2% two weeks later
08/15/06-08/18/06 S&P up… S&P +0.7% two weeks later
07/24/06-07/27/06 S&P up… S&P +0.7% two weeks later
07/19/06-07/24/06 S&P up… S&P +0.8% two weeks later
04/18/06-04/21/06 S&P up… S&P +1.1% two weeks later
01/03/06-01/06/06 S&P up… S&P -1.7% two weeks later
10/31/05-11/03/05 S&P up… S&P +1.9% two weeks later
08/31/05-09/06/05 S&P up… S&P -1.0% two weeks later
07/08/05-07/13/05 S&P up… S&P +1.1% two weeks later
05/18/05-05/23/05 S&P up… S&P +0.3% two weeks later

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

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