Four Lower Lows for S&P, But Breadth Statistics Better than Expected

Interesting to note that even as the S&P traded below the prior day's lows in
early trading Thursday, breadth statistics remained solid. As the S&P briefly
violated the 1390 level about ninety minutes into the session, the number of
declining issues just barely outnumbered the number of advancers. Not only
were most stocks not following the S&P into new lows, they weren't even
trading down on the day. And from that point on, breadth improved throughout
the remainder of the session, closing 3:2 positive.

Thursday marked the fourth consecutive session of lower lows for the S&P, yet
when you add up the past four closing advance/decline ratios, you come up with
a reading north of 4.0. That's a subtle clue that beneath the surface, most
stocks are trading better than the S&P. Consider that since 1990, there have
been 118 instances in which four lower lows has coincided with a four-day
advance/decline sum less than 4.0. But the same pattern with a sum over 4.0
has only occurred 19 times, illustrating the relative strength of the recent
breadth statistics.

Historically, this has translated into limited downside potential over the
short-term and typically a higher S&P close within the next couple of
sessions. The last thirty separate instances in which the S&P posted four
consecutive lower lows and the four-day sum of the NYSE advance/decline ratio
exceeded 4.0 are listed in the table below...

S&P Four Lower Lows, Adv/Dec Ratio Four-Day Sum Over 4.0
05/08/08... S&P500 ???
01/23/08... S&P500 +1.0% one session later
11/02/07... S&P500 +0.7% two sessions later
06/27/07... S&P500 -0.2% two sessions later
05/12/05... S&P500 +0.6% two sessions later
04/29/05... S&P500 +0.5% one session later
07/19/04... S&P500 +0.7% one session later
09/30/03... S&P500 +2.2% one session later
12/31/02... S&P500 +3.3% one session later
08/28/02... S&P500 -0.2% two sessions later
04/30/02... S&P500 +0.9% one session later
01/30/02... S&P500 +1.5% one session later
08/17/01... S&P500 +0.8% one session later
08/10/01... S&P500 +0.1% one session later
01/05/00... S&P500 +0.1% one session later
08/29/97... S&P500 +3.1% one session later
08/29/96... S&P500 +1.3% one session later
07/07/93... S&P500 +1.3% one session later
01/05/93... S&P500 +0.0% one session later
05/08/91... S&P500 +1.3% one session later
03/06/81... S&P500 +1.0% one session later
03/28/78... S&P500 +0.2% one session later
07/07/77... S&P500 -0.4% two sessions later
04/20/77... S&P500 -2.0% two sessions later (*)
02/18/76... S&P500 +1.6% one session later
01/09/74... S&P500 +0.3% two sessions later
12/18/69... S&P500 +0.9% one session later
01/17/68... S&P500 -0.4% two sessions later
01/04/67... S&P500 +1.3% one session late

Note that out of 28 occurrences, 23 were followed by a subsequently higher S&P
close within two sessions. That 82% rate is well above the 64% at-any-time
odds of a higher S&P close within two days. If you only consider instances
since 1990, when the majority of signals occurred, the rate increases to 17
out of 19, or 89%. What also struck me was the limited downside potential over
the next couple of sessions even when proven wrong. Note that in only one case
out of 28 was the S&P down 0.5% or more two sessions later.

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

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