A Number of Intermediate-term Bullish Setups Triggered Monday

When S&P futures post two unfilled upside gaps within a one-month time frame,
it's generally a bullish indication for the following month. Gaps are normally
filled in short order, but when sellers can't drive the market lower to fill a
gap and then a second upside gap appears, it's usually a sign that sellers are
overwhelmed. While conditions can often turn choppy after the second gap, the
market has a solid track record of rebounding from short-term weakness and
settling flat-to-higher one month later. In the table below is each instance
since 1990 in which two unfilled upside gaps formed within a one-month time
frame, along with the performance of the S&P500 looking out twenty trading
days. Note that in only four cases out of thirty-two occurrences was the S&P
down more than 1% one month later...

Two Unfilled Upside Gaps In a One-Month Time Frame
03/18/08 & 03/24/08... S&P500 ??? one month later
12/21/07 & 12/24/07... S&P500 -10.2% one month later (*)
11/28/07 & 12/05/07... S&P500 -5.0% one month later (*)
04/16/07 & 04/20/07... S&P500 +2.3% one month later
04/03/07 & 04/16/07... S&P500 +2.3% one month later
06/15/06 & 06/29/06... S&P500 -0.1% one month later
10/31/05 & 11/17/05... S&P500 +1.7% one month later
05/18/05 & 05/26/05... S&P500 -0.6% one month later
10/01/04 & 10/04/04... S&P500 -0.4% one month later
11/24/03 & 12/01/03... S&P500 +3.8% one month later
03/13/03 & 04/02/03... S&P500 +4.3% one month later
10/15/02 & 10/17/02... S&P500 +2.7% one month later
10/11/02 & 10/15/02... S&P500 +0.2% one month later
11/13/01 & 12/05/01... S&P500 +0.5% one month later
11/05/01 & 11/13/01... S&P500 -0.3% one month later
09/24/01 & 09/28/01... S&P500 +5.6% one month later
04/10/01 & 04/18/01... S&P500 +3.4% one month later
10/28/99 & 10/29/99... S&P500 +2.5% one month later
03/25/99 & 03/29/99... S&P500 +4.6% one month later
03/05/99 & 03/25/99... S&P500 +4.7% one month later
11/23/98 & 11/27/98... S&P500 +2.3% one month later
10/30/98 & 11/23/98... S&P500 +0.8% one month later
01/13/98 & 02/02/98... S&P500 +5.1% one month later
11/17/97 & 11/20/97... S&P500 -1.7% one month later (*)
04/15/97 & 04/29/97... S&P500 +6.3% one month later
12/19/96 & 12/20/96... S&P500 +3.9% one month later
09/13/96 & 10/02/96... S&P500 +0.5% one month later
09/12/96 & 09/13/96... S&P500 +2.5% one month later
05/10/96 & 06/04/96... S&P500 -0.0% one month later
10/11/94 & 10/13/94... S&P500 -0.8% one month later
07/14/94 & 07/29/94... S&P500 +3.6% one month later
11/20/92 & 12/18/92... S&P500 -1.3% one month later (*)
01/17/91 & 01/30/91... S&P500 +7.2% one month later

Today's lopsided breadth sent the 10-day moving average of the NYSE
advance/decline ratio over 2.0, meaning that on average, the number of
advancing issues has been running at twice the level of declining issues over
the past two weeks. You'll normally only see such an occurrence during a
persistently strong uptrend, and the stock market invariable does one of two
things over the next few weeks - it either chops sideways or it rallies. In
nearly every case (20 out of 21) since 1980, the S&P has posted a higher close
3-4 weeks after the 10-day average initially rose over 2.0. This suggests
we're likely to see an S&P close above today's settlement of 1349 in the April
11th-18th time frame...

10-day average of NYSE advance/decline ratio over 2.0
03/24/08 SPX 1349.88... ???
12/05/07 SPX 1485.01... Higher S&P close 14 days later
09/19/07 SPX 1529.03... Higher S&P close 14 days later
08/24/07 SPX 1479.37... Higher S&P close 14 days later
03/19/07 SPX 1402.06... Higher S&P close 14 days later
07/28/06 SPX 1278.55... Higher S&P close 14 days later
05/27/04 SPX 1121.26... Higher S&P close 14 days later
06/05/03 SPX 990.14... Higher S&P close 19 days later
05/12/97 SPX 837.66... Higher S&P close 14 days later
01/02/92 SPX 417.26... Higher S&P close 14 days later
01/29/91 SPX 335.84... Higher S&P close 14 days later
06/13/88 SPX 271.43... Higher S&P close 14 days later
01/04/88 SPX 255.95... Higher S&P close 19 days later
10/30/87 SPX 251.79... No higher close 14-19 days later
01/05/87 SPX 252.19... Higher S&P close 14 days later
01/21/85 SPX 175.23... Higher S&P close 14 days later
08/03/84 SPX 162.37... Higher S&P close 14 days later
11/08/82 SPX 140.44... Higher S&P close 19 days later
10/11/82 SPX 134.46... Higher S&P close 15 days later
08/18/82 SPX 108.53... Higher S&P close 14 days later
10/09/81 SPX 121.45... Higher S&P close 15 days later
04/10/80 SPX 104.08... Higher S&P close 14 days later

Monday's higher close also triggered a second intermediate-term bullish setup,
as the S&P finished above last Tuesday's settlement when breadth also closed
better than 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. It's hit a rough patch recently,
but still maintains an 80% win rate stretching back to 1995...

S&P500 Higher Three Days After 3:1 Positive Breadth
03/18/08-03/24/08 S&P up... S&P ??? two weeks later
01/28/08-01/31/08 S&P up... S&P -2.2% 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

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

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