When Two Small Up Days are Confined Within the Range of a Larger Down Day

The ability of the S&P500 to 'shrug off' Wednesday's weakness in the banking
sector does not necessarily suggest further strength short-term. More often
than not, the S&P struggles over the next few sessions when it bucks the trend
of a solid down day for the BKX. The table below lists the last thirty
instances in which the S&P500 closed higher on a day when the Philadelphia
Bank Index lost more than 1.5%...

S&P Closes Higher Despite 1.5%+ Selloff for BKX
05/28/08... S&P500 ??? three sessions later
05/16/08... S&P500 -2.4% three sessions later
05/08/08... S&P500 +0.4% three sessions later
04/04/08... S&P500 -1.2% three sessions later
03/03/08... S&P500 -2.0% three sessions later
12/12/07... S&P500 -2.7% three sessions later
04/02/07... S&P500 +1.4% three sessions later
03/06/07... S&P500 +0.5% three sessions later
10/05/01... S&P500 +0.9% three sessions later
01/09/01... S&P500 +1.4% three sessions later
11/15/00... S&P500 -3.4% three sessions later
10/04/00... S&P500 -2.3% three sessions later
06/30/00... S&P500 +0.1% three sessions later
06/21/00... S&P500 -1.6% three sessions later
06/15/00... S&P500 -0.2% three sessions later
05/16/00... S&P500 -4.0% three sessions later
04/27/00... S&P500 -1.3% three sessions later
04/07/00... S&P500 -3.2% three sessions later
02/17/00... S&P500 -2.0% three sessions later
02/14/00... S&P500 -0.1% three sessions later
02/10/00... S&P500 -1.0% three sessions later
01/10/00... S&P500 -0.5% three sessions later
12/16/99... S&P500 +1.0% three sessions later
11/03/99... S&P500 +1.6% three sessions later
09/27/99... S&P500 -0.1% three sessions later
08/25/99... S&P500 -4.2% three sessions later
07/21/99... S&P500 -2.3% three sessions later
05/17/99... S&P500 -0.1% three sessions later
04/26/99... S&P500 -1.3% three sessions later
10/21/98... S&P500 +0.2% three sessions later
05/27/97... S&P500 -0.2% three sessions later

Note that in only nine cases out of thirty, or 30% of the time, was the S&P
trading at a higher level three sessions later. That's significantly worse
than the 54% at-any-time odds for a higher S&P three sessions later. The S&P
gained more than 0.5% over the next three days in only five cases out of
thirty, while it lost more than 0.5% a total of fifteen times.

Also noteworthy was the fact that the last two rally days have nearly been
confined with last Friday's range. If it weren't for the brief dip into new
lows (by less than a point) Tuesday morning, the S&P would be fully contained
within Friday's range. Even though not technically triggered, it brings up an
interesting point because this price pattern isn't as negative as you might
expect. You would think a small two-day rally after a solid selloff would lead
to further weakness short-term, but our research suggests otherwise. The last
thirty times in which the S&P500 posted a three-day pattern of a down day
followed by two up days, with the intraday range of both rally days holding
within the range of the down day, are listed in the table below along with the
S&P's performance over the next three sessions...

SPX Rallies Second Day, Holds Within Range of Two-Day Ago Down Bar
05/29/07... S&P500 +1.2% three sessions later
04/13/06... S&P500 +1.6% three sessions later
01/24/06... S&P500 +1.3% three sessions later
07/27/05... S&P500 -0.1% three sessions later
02/24/05... S&P500 +0.9% three sessions later
10/18/04... S&P500 -0.7% three sessions later (*)
12/17/03... S&P500 +1.5% three sessions later
07/23/03... S&P500 +0.8% three sessions later
12/11/02... S&P500 +0.6% three sessions later
06/01/01... S&P500 +0.7% three sessions later
05/15/01... S&P500 +3.4% three sessions later
08/01/00... S&P500 +1.7% three sessions later
12/02/99... S&P500 +0.0% three sessions later
11/04/99... S&P500 +0.2% three sessions later
06/15/99... S&P500 +3.2% three sessions later
04/21/99... S&P500 +1.8% three sessions later
09/09/97... S&P500 -1.0% three sessions later (*)
08/05/97... S&P500 -2.0% three sessions later (*)
07/11/97... S&P500 +2.2% three sessions later
02/07/97... S&P500 +1.7% three sessions later
09/26/96... S&P500 +0.5% three sessions later
12/22/95... S&P500 +0.4% three sessions later
07/21/95... S&P500 +1.4% three sessions later
03/09/95... S&P500 +2.0% three sessions later
08/09/94... S&P500 +0.9% three sessions later
07/22/94... S&P500 -0.1% three sessions later
06/10/94... S&P500 +0.4% three sessions later
05/13/94... S&p500 +2.2% three sessions later
02/28/94... S&P500 -0.9% three sessions later (*)
05/25/93... S&P500 +0.3% three sessions later

Note that in only four cases out of thirty did the S&P close down 0.5% or more
three sessions later, while it gained 0.5% or more a total of nineteen times.
That's surprisingly strong performance. While this setup wasn't technically
triggered Wednesday, it was a close call. Given that it conflicts with the
bearish implications of the BKX setup above, this could be a sign of generally
choppy conditions heading into early next week.

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

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