On Watch for a Fifth Consecutive ‘Lower High’ on the Weekly S&P Chart

NYSE TICK action was persistently negative Friday as institutional investors
remained better sellers. TICKscore settled at -20, the tenth negative
TICKscore reading out of the past eleven sessions. Cumulative TICK settled at
a low -78,000, keeping the 20-day moving average trending lower.

Breadth closed better than 4:1 negative, with downside volume accounting for
86% of total big board volume. The weak breadth data sent the NYSE McClellan
Oscillator near extreme oversold territory at -195. Readings below -200
usually signal a short-term bottom (see my June 11th column).

The CBOE equity put/call ratio 10-day average settled over .80 Friday. Note
from the long-term chart that readings this high indicate an extreme level of
put volume normally associated with intermediate-term bottoming phases. Every
instance over the past decade in which the 10-day average initially moved
above the .80 level is listed in the table below, along with the S&P’s
performance over the following two weeks…

CBOE Equity P/C Ratio 10day Avg Over 0.80
04/07/08… S&P500 +1.1% two weeks later
03/06/08… S&P500 +1.9% two weeks later
01/17/08… S&P500 +4.7% two weeks later
03/13/07… S&P500 +3.7% two weeks later
08/13/04… S&P500 +4.0% two weeks later
06/14/04… S&P500 +0.7% two weeks later
05/17/04… S&P500 +3.4% two weeks later
05/12/04… S&P500 +1.6% two weeks later
03/19/04… S&P500 +2.9% two weeks later
02/06/03… S&P500 +1.2% two weeks later
09/19/02… S&P500 -2.9% two weeks later
06/21/02… S&P500 -1.2% two weeks later
09/18/01… S&P500 +1.8% two weeks later

The S&P500 posted its fourth ‘lower high’ on the weekly charts, and barring a
big turnaround this week, we could very well see a fifth lower high this
coming week. That would be noteworthy, given that five lower weekly highs has
been a good indication that selling pressure is near an intermediate-term
exhaustion point. The S&P has a solid track record of posting a higher weekly
close 3-4 weeks later. Since 1970, there have been 26 separate instances in
which the S&P posted five lower highs on its weekly chart, all of which are
listed in the table below along with the S&P’s performance 3-4 weeks later.
Note that the SPX closed at a subsequently higher level in 23 out of 26 cases,
or 88% of the time, significantly better than the 67% at-any-time odds for a
higher weekly S&P 3-4 weeks later.

Five Consecutive Lower Highs on Weekly SPX Chart
07/30/04… S&P500 +0.6% four weeks later
07/26/02… S&P500 +8.9% three weeks later
03/09/01… S&P500 -8.5% four weeks later
10/06/00… S&P500 +1.3% four weeks later
12/09/94… S&P500 +2.8% three weeks later
04/22/94… S&P500 +1.6% four weeks later
08/24/90… S&P500 +1.7% three weeks later
08/08/86… S&P500 +6.8% three weeks later
12/14/84… S&P500 +0.6% three weeks later
07/27/84… S&P500 +8.6% three weeks later
02/17/84… S&P500 +2.3% four weeks later
06/18/82… S&P500 +1.4% three weeks later
03/05/82… S&P500 +2.4% three weeks later
09/18/81… S&P500 +4.5% three weeks later
02/13/81… S&P500 +2.3% three weeks later
03/21/80… S&P500 +1.5% three weeks later
11/17/78… S&P500 +2.3% three weeks later
08/26/77… S&P500 +0.4% three weeks later
02/11/77… S&P500 +1.0% three weeks later
09/13/74… S&P500 +9.1% four weeks later
07/12/74… S&P500 -2.8% four weeks later
05/24/74… S&P500 +3.1% three weeks later
02/08/74… S&P500 +3.5% three weeks later
12/07/73… S&P500 +1.1% three weeks later
09/22/72… S&P500 +0.7% four weeks later
05/01/70… S&P500 -6.0% four weeks later

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

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