Lopsided Breadth Statistics Pointing to a Potential Pullback Wednesday and Rebound Thursday

It takes discipline, and a certain amount of conviction, to not deviate from a
strategy during a drawdown. But for those following our intraday TrendCatcher
strategy, note that Tuesday's surge produced a new equity high (see track
record).

The S&P500 closed up over 3% in very one-sided trade, but new 52-week highs
are lagging noticeably behind and will be something to watch in the days
ahead. A failure to exceed the March high at the 57 level would produce a
negative divergence.

Today marked the eleventh 3:1+ positive breadth session for the NASDAQ in just
the last two years. That's more occurrences than in the prior decade put
together. Out of a total of eighteen occurrences since 1995, only one led to a
gain of more than 0.5% the following day, indicating a session like Tuesday
often relates to a short-term 'buying climax'...

Nasdaq Breadth 3:1 Positive
04/01/08... NDX ??? next day
03/18/08... NDX -2.6% next day
11/28/07... NDX +0.3% next day
11/23/07... NDX -2.0% next day
09/18/07... NDX +0.3% next day
08/29/07... NDX +0.5% next day
03/06/07... NDX -0.4% next day
10/12/06... NDX +0.5% next day
08/15/06... NDX +2.3% next day (*)
07/19/06... NDX -1.6% next day
06/29/06... NDX -0.7% next day
06/15/06... NDX -0.7% next day
03/12/04... NDX -2.2% next day
11/27/02... NDX -0.9% next day
10/15/02... NDX -4.2% next day
04/05/01... NDX -4.7% next day
01/03/01... NDX -2.7% next day
06/02/00... NDX -0.7% next day
04/18/00... NDX -3.6% next day

Looking out to Thursday's close, breadth suggests downside potential will also
be limited. The market has a notable tendency to remain on fairly steady
ground in the two days following a 5:1 positive breadth session. There have
been a total of 26 such sessions since 1980, only three of which led to an S&P
down more than 0.5% two sessions later. This indicates a pullback on Wednesday
could lead to another upside try on Thursday...

5-1 Positive Breadth on the NYSE
04/01/08... S&P500 ??? two sessions later
03/18/08... S&P500 -0.1% two sessions later
03/11/08... S&P500 -0.4% two sessions later
11/28/07... S&P500 +0.8% two sessions later
09/18/07... S&P500 -0.1% two sessions later
08/31/07... S&P500 -0.1% two sessions later
08/29/07... S&P500 +0.7% two sessions later
08/17/07... S&P500 +0.1% two sessions later
08/15/06... S&P500 +0.9% two sessions later
07/19/06... S&P500 -1.6% two sessions later (*)
06/29/06... S&P500 +0.6% two sessions later
04/05/94... S&P500 +0.6% two sessions later
08/21/91... S&P500 +0.9% two sessions later
01/17/91... S&P500 +0.9% two sessions later
08/27/90... S&P500 +0.9% two sessions later
01/04/88... S&P500 +1.2% two sessions later
10/30/87... S&P500 -0.4% two sessions later
10/21/87... S&P500 -3.9% two sessions later (*)
01/05/87... S&P500 +1.3% two sessions later
01/02/87... S&P500 +2.6% two sessions later
08/02/84... S&P500 +2.9% two sessions later
11/03/82... S&P500 -0.5% two sessions later
10/11/82... S&P500 +1.7% two sessions later
08/17/82... S&P500 +0.1% two sessions later
01/28/82... S&P500 -1.0% two sessions later (*)
04/22/80... S&P500 +0.9% two sessions later
03/28/80... S&P500 +1.5% two sessions later

Looking out a bit further, it's noteworthy that Tuesday represented another
90% up volume session. That's the second 90% up day in just the last ten
sessions. Since 1965, there have only been eleven instances in which two 90%
up volume days have appeared within a one-month time frame. In ten out of
eleven cases, the S&P was higher one month later...

Two 90% Up Volume Days in One Month
04/01/08... S&P500 ??? one month later
11/28/07... S&P500 +0.5% one month later
11/23/07... S&P500 +3.0% one month later
09/18/07... S&P500 +1.2% one month later
08/31/07... S&P500 +5.0% one month later
08/29/07... S&P500 +4.6% one month later
03/21/07... S&P500 +2.5% one month later
07/19/06... S&P500 +2.8% one month later
06/29/06... S&P500 +0.5% one month later
07/29/02... S&P500 +5.5% one month later
10/29/87... S&P500 -1.8% one month later
08/20/82... S&P500 +8.4% one month later

From a longer-term perspective, keep in mind that 1400 on the SPX corresponds
with the major double bottom from August and November of last year. At both
points over 500 issues hit new 52-week lows, historically an extreme level
that corresponds with major market bottoms. The fact that 1400 was cleanly
violated back in January and has since turned into resistance indicates the
S&P could run into a fairly stiff headwind about 2% higher.

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

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