S&P500 On the Verge of Posting its Fourth Consecutive Down Month

If the SPX settles below 1378 on Friday, it will mark the fourth consecutive
down month for the S&P500, something that hasn't occurred since 2002. Looking
back over the last fifty years, we find ten separate instances in which the
S&P initially posted four consecutive lower closes on its monthly chart. In
each case the S&P gained at least 3% on an 'intramonth' basis the following
month. It didn't necessarily hold those gains into the end of the month (in
fact it only did so 50% of the time), but this does suggest the potential for
an intermediate-term rally sometime in the month of March...

S&P500 Down Four Consecutive Months
07/31/02... S&P500 up as much as 5.9% next month
09/28/01... S&P500 up as much as 6.7% next month
09/28/90... S&P500 up as much as 4.5% next month
03/31/82... S&P500 up as much as 6.6% next month
07/31/81... S&P500 up as much as 3.3% next month
10/31/77... S&P500 up as much as 5.2% next month
04/30/74... S&P500 up as much as 3.6% next month
04/30/73... S&P500 up as much as 4.9% next month
08/31/66... S&P500 up as much as 4.8% next month
06/29/62... S&P500 up as much as 7.2% next month

On a short-term basis, keep in mind that a break of OEX 626.68 on Friday would
trigger the short-term volatility-based sell signal discussed at the end of
Monday's commentary.

At the same time, Thursday's outperformance by the Nasdaq was noteworthy and
has short-term positive implications looking out two sessions, suggesting
weakness on Friday will be followed by an upside rebound heading into Monday's
close. The Nasdaq100 closed down just 0.3% at 1794, a relatively solid
performance considering breadth settled better than 2:1 negative on the NASDAQ
exchange. As I discussed in my February 21st column when this setup was also
triggered, "when the NDX manages to hold its own in the face of negative
breadth, there's usually further upside in store on a short-term basis." In 36
out of the last 45 occurrences, or 80% of the time, the Nasdaq settled higher
two sessions later.

It's also interesting to note that over the last fifteen years, there have
only been a dozen cases in which Nasdaq breadth was 2:1 negative and the NDX
settled down less than 0.5%. Each of these occurrences is noted in the table
below, along with the performance of the Nasdaq over the next few sessions...

Nasdaq Breadth 2:1 Negative & NDX Down <0.5%
02/28/08... NDX ??? three sessions later
01/05/07... NDX +1.7% three sessionss later
06/13/06... NDX +3.0% three sessions later
02/07/06... NDX +0.7% three sessions later
11/15/05... NDX +2.2% three sessions later
10/11/05... NDX +0.3% three sessions later
08/26/05... NDX +1.5% three sessions later
08/05/05... NDX -1.0% three sessions later
03/09/04... NDX -0.4% three sessions later
10/09/02... NDX +11.6% three sessions later
11/09/00... NDX -0.6% three sessions later
09/21/93... NDX +3.4% three sessions later
10/05/92... NDX +1.5% three sessions later

Note that downside potential has been limited over the short-term, with the
Nasdaq gaining ground more than twice as often and losses limited to 1%. I'd
also add that the NDX nearly drew an inside day despite Thursday's lopsided
negative breadth. This too has generally led to a higher Nasdaq three sessions
later (see my November 19th column.)

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

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