A Firm Nasdaq Despite a Solid Down Day for S&P Has Positive Implications for the Short-term

Seasonally, the week following the Memorial Day holiday is a positive one for
the market. The table below lists the S&P500's performance beginning at the
close on the day after the Memorial Day break and ending one week later. The
date and price is the first day's closing price immediately following the
Memorial Day break. The second price is the closing S&P500 value five sessions
later. Note that the S&P has rallied the week after Memorial Day in 19 out of
the last 24 years...

Today is the First Close after Memorial Day Holiday
05/27/08 SPX ????.??...????.??... ???
05/29/07 SPX 1518.11...1530.95... +0.8%
05/30/06 SPX 1259.88...1263.85... +0.3%
05/31/05 SPX 1191.51...1197.26... +0.5%
06/01/04 SPX 1121.24...1142.12... +1.9%
05/27/03 SPX 951.48...971.56... +2.1%
05/28/02 SPX 1074.55...1040.69... -3.2%
05/29/01 SPX 1267.93...1283.57... +1.2%
05/30/00 SPX 1422.45...1457.84... +2.5%
06/01/99 SPX 1294.26...1317.33... +1.8%
05/26/98 SPX 1094.02...1093.03... -0.1%
05/27/97 SPX 849.71...845.48... -0.5%
05/28/96 SPX 672.23...672.56... +0.1%
05/30/95 SPX 523.58...535.55... +2.3%
05/31/94 SPX 456.52...458.22... +0.4%
06/01/93 SPX 453.83...444.71... -2.0%
05/26/92 SPX 411.41...413.50... +0.5%
05/28/91 SPX 381.94...387.74... +1.5%
05/29/90 SPX 360.65...366.64... +1.7%
05/30/89 SPX 319.05...324.24... +1.6%
05/31/88 SPX 262.14...265.17... +1.2%
05/26/87 SPX 289.11...288.46... -0.2%
05/27/86 SPX 244.75...245.51... +0.3%
05/28/85 SPX 187.85...190.04... +1.2%
05/29/84 SPX 150.29...153.66... +2.2%

Note the general theme of limited downside potential. In only two years out of
the past twenty-four did the S&P fall more than 0.5%, while it gained more
than 0.5% a total of thirteen times. This seasonal setup goes into effect at
Tuesday's close and remains in effect through the following Tuesday.

Price action also suggests the potential for short-term strength. When we last
left off on Wednesday, S&P futures had just posted a solid drop on the heels
of an unfilled downside gap, a development that argued in favor of lower
prices short-term. That setup was fulfilled with Friday's selloff, yet despite
the 1%+ selloff for the S&P, the NASDAQ remained well bid. When the S&P500
closes down sharply, the Nasdaq100 (NDX) typically suffers a similarly large
loss given the large number of 'high beta' stocks that comprise the index. But
when the NDX manages to hold its own in the face of a solid down day for the
S&P, it suggests limited selling pressure and/or a rotational environment.
Typically, the market is trading higher three sessions later. Listed below is
every instance since 1990 in which the NDX settled down less than 0.5% on a
day when the S&P fell over 1%. Note that in 18 out of 22 cases, or 82% of the
time the S&P was trading at a higher level three sessions later...

S&P500 Drops 1%+, Nasdaq Down Less than 0.5%
05/23/08... S&P500 ???
06/13/06... S&P500 +2.3% three days later
05/12/05... S&P500 +1.2% three days later
03/09/05... S&P500 -0.0% three days later
04/16/03... S&P500 +3.6% three days later
01/22/03... S&P500 -3.5% three days later
10/09/02... S&P500 +8.3% three days later
09/24/02... S&P500 +1.0% three days later
04/29/02... S&P500 +1.8% three days later
03/06/00... S&P500 +0.8% three days later
02/16/00... S&P500 -2.6% three days later
05/27/99... S&P500 +1.1% three days later
01/14/99... S&P500 +3.7% three days later
07/09/97... S&P500 +1.2% three days later
03/13/97... S&P500 +0.0% three days later
04/10/96... S&P500 +1.4% three days later
02/20/96... S&P500 +2.9% three days later
01/10/96... S&P500 +0.2% three days later
06/24/94... S&P500 +1.1% three days later
04/01/91... S&P500 +2.3% three days later
01/09/91... S&P500 +0.3% three days later
01/02/91... S&P500 -3.4% three days later
07/05/90... S&P500 +0.2% three days later

Also noteworthy is that despite the 2:1 negative breadth on the NASDAQ
exchange, the Nasdaq100 index traded within an unusually narrow range.
Measuring from the intraday high to the intraday low, the NDX was confined to
less than a 21 point range, its smallest range in over two weeks. This creates
what's known as an 'NR10' session, or Narrow Range 10, meaning the range was
the smallest of the last ten sessions. Historically, a lopsided negative
breadth day like we saw Friday doesn't coincide with an NR10 session - the
range usually expands when breadth is this lopsided. When it contracts to its
lowest level in two weeks, as it did Friday, it can be an indication that a
change in trend is nearby. Since 1990, there have only been nine instances in
which an NR10 day coincided with a 2:1 negative breadth session. Each of these
instances is noted in the table below, along with the Nasdaq's performance
over the next three sessions...

Nasdaq NR10 Day & 2:1 Negative Breadth
05/23/08... Nasdaq ??? three sessions later
08/11/06... Nasdaq +5.6% three sessions later
07/21/06... Nasdaq +2.5% three sessions later
10/18/05... Nasdaq +1.7% three sessions later
05/10/04... Nasdaq +1.4% three sessions later
04/06/04... Nasdaq +0.2% three sessions later
12/13/02... Nasdaq +0.8% three sessions later
09/05/02... Nasdaq +7.3% three sessions later
08/03/98... Nasdaq -0.2% three sessions later
01/21/92... Nasdaq +5.3% three sessions later

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

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