When the S&P Rallies 1%+ and Doubles the Performance of the BKX

NYSE TICK action remained negative Friday, keeping our intraday Trendcatcher
strategy on the sidelines despite the solid advance. Institutions aren't
participating on the upside, leading one to question the lasting power of this
rally beyond the short-term.

Cumulative TICKscore has cleanly taken out its March/December lows, a negative
development from a longer-term perspective. Note from the long-term chart that
the cumulative TICKscore was in a general uptrend throughout 2004-2006. Only
in 2007 did it begin falling into a general pattern of lower lows, and the
recent violation of the March lows suggests this trend remains intact.

The S&P100 Volatility Index (VXO) fell out of overbought territory Friday,
fulfilling the short-term volatility-based buy setup outlined in my June 10th
column.

Despite the 1%+ rally for the S&P on Friday, the underperformance by the Bank
Index was noteworthy. The BKX only managed a 0.2% gain vs. a 1.5% gain for the
S&P500. Looking back at times when the S&P closed up 1% or more and more than
doubled the performance of the BKX, the S&P typically reversed course and
closed at a lower level within the next couple of days. The last thirty
occurrences are listed in the table below. Note that in 25 cases, or 83% of
the time, the S&P closed below the setup day's settlement within two sessions.
That's much higher than the S&P's 62% at-any-time odds, indicating significant
underperformance by the bank sector on a solid up day has short- term bearish
implications...

SPX +1%, Doubles Performance of BKX
06/13/08... ???
03/24/08... Lower SPX close two sessions later
02/13/08... Lower SPX close one session later
01/14/08... Lower SPX close one session later
10/31/07... Lower SPX close one session later
08/24/07... Lower SPX close one session later
08/22/07... Lower SPX close one session later
03/06/07... Lower SPX close one session later
05/25/06... Lower SPX close two sessions later
04/21/05... Lower SPX close one session later
11/12/03... Lower SPX close one session later
05/09/03... No lower close within two sessions
04/10/02... Lower SPX close one session later
10/03/01... Lower SPX close one session later
08/24/01... Lower SPX close one session later
07/25/01... No lower close within two sessions
06/05/01... Lower SPX close one session later
05/21/01... Lower SPX close one session later
04/25/01... No lower close within two sessions
04/19/01... Lower SPX close one session later
04/17/01... No lower close within two sessions
01/18/01... Lower SPX close one session later
12/27/00... Lower SPX close two sessions later
11/14/00... Lower SPX close two sessions later
08/07/00... Lower SPX close two sessions later
06/13/00... No lower close within two sessions
05/05/00... Lower SPX close one session later
04/07/00... Lower SPX close one session later
03/09/00... Lower SPX close one session later
02/03/00... Lower SPX close one session later
01/10/00... Lower SPX close one session later

At the same time, Friday's solid 2%+ gain for the NASDAQ also triggered a
short-term positive setup for the S&P. The reasoning is that as of Friday's
close, the NDX is now sitting just above its three-week ago close, while the
S&P is down well over 1% compared to its three-week ago level. Historically,
this type of relative outperformance by the Nasdaq has had short-term positive
implications for the S&P. Of the last thirty separate occurrences in which the
S&P was down 1% or more over a three week period and the Nasdaq gained, all
but two led to a subsequently higher S&P close within the next three sessions.
That 93% win rate is significantly above the 72% 'at-any-time' odds of a
higher S&P close within the next three days...

SPX -1% vs. Three Weeks Ago, NDX Higher
06/13/08... ???
06/04/08... Higher S&P close one session later
05/27/08... Higher S&P close one session later
11/01/07... Higher S&P close one session later
10/30/07... Higher S&P close one session later
10/19/07... Higher S&P close one session later
07/26/07... No higher S&P close within three days
07/10/07... Higher S&P close one session later
06/20/07... Higher S&P close one session later
04/17/06... Higher S&P close one session later
04/12/06... Higher S&P close one session later
10/19/05... Higher S&P close three sessions later
10/27/04... Higher S&P close one session later
09/28/04... Higher S&P close one session later
05/21/04... Higher S&P close one session later
03/29/04... Higher S&P close one session later
07/24/03... Higher S&P close one session later
07/10/03... Higher S&P close one session later
07/03/03... Higher S&P close one session later
03/14/03... Higher S&P close one session later
03/04/03... Higher S&P close one session later
02/24/03... Higher S&P close one session later
02/19/03... Higher S&P close two sessions later
11/13/02... Higher S&P close one session later
10/11/02... Higher S&P close one session later
07/17/02... No higher S&P close within three days
12/13/01... Higher S&P close one session later
12/11/01... Higher S&P close one session later
10/31/01... Higher S&P close one session later
07/12/01... Higher S&P close one session later
06/28/00... Higher S&P close three sessions later

The mixed indications suggests the potential for choppy activity over the
short-term, given the likelihood of a close both above and below Friday's
settlement by midweek.

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

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