New 52-week Lows Top 500 for the Tenth Time in Six Months

S&P futures opened down over 2% Monday at 1260.50, which essentially marked
the low for the session. As discussed in Sunday evening's column, downside
gaps of 2% or more have often marked an intraday buying opportunity, and
today's session was no exception.

Breadth settled in 5:1 negative territory for the second day in a row, sending
the NYSE McClellan Oscillator back under -200. Readings this low are normally
associated with a short-term bottoming period, and the S&P is usually trading
at a higher level three trading days later (see my March 9th column).

Along similar lines, I'd note that Monday was the second day in a row in which
the number of decliners doubled the number of advancers. Historically, this
setup has also maintained a good track record of calling for a higher S&P
three or five trading days later - see my March 2nd column for the track
record.

While indications are pointing to higher prices later this week, it looks like
it could be a bumpy ride. Note that the S&P500 settled down 0.9% at 1276
Monday, a weak showing on the heels of Friday's 92% down volume session. As
discussed October 21st, when the S&P closes down more than 0.5% immediately
following a 90% down volume session, it typically falls at least another 1%
(on an intraday basis) in the next few days.

Over 750 issues hit new 52-week lows Monday, historically a sign the S&P is
nearing an intermediate-term bottom. But like other longer-term bullish setups
(such as 90% down volume days), the accuracy has been faltering over the past
six months. The table below notes every instance over the last thirty years in
which new 52-week lows initially exceeded 500...

New 52-week Lows on the NYSE Top 500
03/17/08 759 New Lows... S&P ??? three weeks later
01/18/08 625 New Lows... S&P +1.1% three weeks later
01/09/08 709 New Lows... S&P -2.2% three weeks later (*)
01/04/08 539 New Lows... S&P -4.1% three weeks later (*)
11/19/07 565 New Lows... S&P +3.1% three weeks later
11/08/07 505 New Lows... S&P +0.4% three weeks later
08/15/07 717 New Lows... S&P +5.1% three weeks later
08/06/07 688 New Lows... S&P -0.1% three weeks later
08/01/07 511 New Lows... S&P -0.1% three weeks later
07/26/07 828 New Lows... S&P -4.8% three weeks later (*)
05/07/04 706 New Lows... S&P +2.0% three weeks later
10/09/02 604 New Lows... S&P +14.7% three weeks later
07/22/02 513 New Lows... S&P +10.2% three weeks later
09/19/01 539 New Lows... S&P +6.4% three weeks later
09/17/01 536 New Lows... S&P +2.3% three weeks later
12/14/99 565 New Lows... S&P -0.1% three weeks later
10/15/99 500 New Lows... S&P +9.9% three weeks later
10/07/98 535 New Lows... S&P +10.0% three weeks later
09/10/98 515 New Lows... S&P +0.6% three weeks later
08/26/98 575 New Lows... S&P -6.0% three weeks later (*)
08/04/98 541 New Lows... S&P +1.9% three weeks later
04/04/94 637 New Lows... S&P +3.1% three weeks later
08/23/90 711 New Lows... S&P +3.2% three weeks later
10/19/87 1068 New Lows... S&P +8.1% three weeks later
09/28/81 590 New Lows... S&P +3.0% three weeks later
03/27/80 714 New Lows... S&P +2.4% three weeks later
10/30/78 583 New Lows... S&P +0.2% three weeks later

Performance figures aside, the sheer number of instances in the last six
months is noteworthy in its own right. Monday marked the tenth time that new
52-week lows exceeded 500, easily setting a new record in terms of frequency.
There's only been one other period in the last fifty years that compares - the
early 1970's. In 1970 there were five separate instances of 500+ new lows, and
in 1974 there were six instances. The next closest is 1998 with four.

We stopped relying on 90% down volume days as a longer-term bullish signal
when they began occurring with greater and greater frequency (more than twice
the historical average) - see my January 7th column for the discussion. The
fact that we've just seen the tenth separate surge in new 52-week lows, when
the previous record was roughly half that, sounds a similarly cautious note
regarding the long-term outlook.

With the Fed announcement on tap for Tuesday, keep an eye on where the VXO
closes relative to the open. It's rare for the VXO to manage any substantial
gains because the market has already priced in the potential for stepped-up
volatility prior to the actual announcement. It's only when the VXO gains 5%
or more (from the open) that it reflects a market caught off guard by the Fed.
This has occurred only eight times out of 123 regularly scheduled
announcements since 1993. Not surprisingly, these cases typically led to a
rough period for stocks over the next two months, as the table below
illustrates...

VXO +5% or More from Open on Fed Day
12/11/07... VXO +12.0%.... S&P -9.9% two months later
09/20/05... VXO +6.0%... S&P +0.6% two months later
03/22/05... VXO +5.9%... S&P +1.2% two months later
01/28/04... VXO +12.1%... S&P -1.7% two months later
10/03/00... VXO +4.6%... S&P -5.9% two months later
02/05/97... VXO +4.9%... S&P -2.6% two months later
02/04/94... VXO +42.8%... S&P -4.6% two months later
09/21/93... VXO +8.3%... S&P +3.0% two months later

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

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