S&P Manages a Higher Close, But Persistent Weakness in the Financials is a Short-term Negative

NYSE TICK action remained negative Monday despite the bounce attempt.
TICKscore settled at -8, Cumulative TICK -38,000. New 52-week lows came in at
474, down slightly from Friday’s level. Decliners outnumbered advancers by a
3:2 margin, the ninth negative breadth session in the last ten days. The
persistent weakness has sent the cumulative breadth line below its March lows,
increasing the chances that the S&P will follow suit.

One indicator in particular suggests the market is entering tremendously
oversold territory – S&P’s Trendline Oscillator, which closed below -9 on
Monday. This is the kind of extreme reading seen only once every few years
(pull up this long-term chart for an illustration). Clearly we’re approaching
an intermediate-term bottoming period for the S&P, although the potential for
one more leg down remains a real possibility. In addition to the failed
McClellan signal mentioned in recent columns, I’d note that the short-term buy
setup involving the Dow 2-day RSI is off the board following today’s barely
higher Dow close (another failed oversold setup). Not to mention that the
persistent weakness in the financials is a short-term negative. 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 (as was the case Monday). 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
06/30/08… S&P500 ??? three sessions later
06/23/08… S&P500 -2.6% three sessions later
06/09/08… S&P500 -1.6% three sessions later
05/28/08… S&P500 -0.4% 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

Note that in only eight cases out of thirty, or 27% of the time, was the S&P
trading at a higher level three sessions later, significantly worse than the
54% at-any-time odds for a higher S&P three sessions later.

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

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