Bank Index Down over 2% Despite a Selloff in the Bond Market

New 52-week lows surged to nearly 900 issues Friday. This is approaching about
as extreme a reading as we’ve ever seen. Since 1970, there have only been
eight instances in which the number of new lows on the big board topped 900.
In each case, the S&P was trading higher one month later, and in most cases it
was trading higher one and two weeks later as well…

New 52-week Lows on the NYSE Top 900
01/22/08… S&P +4.0% in one week, +2.0% in two, +3.8% in four
08/16/07… S&P +3.6% in one week, +3.3% in two, +5.2% in four
07/24/02… S&P +8.1% in one week, +4.0% in two, +12.6% in four
10/08/98… S&P +9.2% in one week, +12.4% in two, +18.2% in four
08/31/98… S&P +6.9% in one week, +8.4% in two, +9.6% in four
08/27/98… S&P -5.8% in one week, -3.2% in two, +0.2% in four
10/19/87… S&P +1.2% in one week, +13.6% in two, +9.6% in four
05/25/70… S&P +10.8% in one week, +8.2% in two, +9.1% in four

Other points of interest…

S&P’s Trendline Oscillator bottomed on July 3rd and has begun forming a series
of higher highs, creating a positive divergence.

The VIX-VXV Ratio closed at a high 1.08 Friday, reflecting stepped-up fear
(see my April 8th column for background).

We saw a healthy amount of volume in the SPY Friday as nearly 500 million
shares traded hands, the heaviest volume in over three months.

One short-term negative development was the poor showing by the banking sector
despite the sharp drop in the bond market (rise in rates). Since 1997 there
have been a total of 251 sessions in which the Philadelphia Bank Index (BKX)
lost 2% or more in a single session, as was the case Friday. In only 37 of
those 251 cases, or 15% of the time did the Ten-year Yield (TNX) gain 1% or
more (meaning a solid drop in treasury futures). When the bank sector and the
bond market both post a solid down day, it’s generally a short-term negative
sign for the stock market in general. The table below lists each of the last
thirty instances in which the BKX fell 2% or more and the TNX gained 1% or
more in the same session. Note that in 25 out of 30 cases, or 83% of the time,
the S&P posted a subsequently lower close 1-2 days later. That’s significantly
higher than the 61% at-any-time odds of a lower SPX close (below the trigger
day’s settlement) within two days.

Bank Index -2%, Bonds Down (TNX +1%)
07/11/08… ???
06/09/08… Lower SPX close one session later
05/21/08… Lower SPX close two sessions later
05/13/08… No lower SPX close within two sessions
03/27/08… Lower SPX close one session later
02/14/08… Lower SPX close two sessions later
02/04/08… Lower SPX close one session later
12/14/07… Lower SPX close one session later
05/07/04… Lower SPX close one session later
04/13/04… Lower SPX close one session later
06/20/02… Lower SPX close one session later
09/20/01… Lower SPX close one session later
01/12/01… No lower SPX close within two sessions
06/21/00… Lower SPX close one session later
04/27/00… Lower SPX close one session later
02/09/00… Lower SPX close two sessions later
01/18/00… Lower SPX close two sessions later
01/03/00… Lower SPX close one session later
11/29/99… Lower SPX close one session later
11/17/99… No lower SPX close within two sessions
09/27/99… Lower SPX close one session later
08/30/99… Lower SPX close one session later
08/06/99… Lower SPX close one session later
07/29/99… Lower SPX close one session later
05/27/99… No lower SPX close within two sessions
05/14/99… Lower SPX close two sessions later
05/06/99… No lower SPX close within two sessions
02/24/99… Lower SPX close one session later
02/04/99… Lower SPX close one session later
02/01/99… Lower SPX close one session later
10/07/98… Lower SPX close one session later

This is in contrast to a short-term bullish setup also on the board. If both
setups prove correct, the implication is we’ll see a rebound on Monday
followed by another down day Tuesday. If intermediate-term indications are
correct, we should then see the market embark on a general rally heading into
the last week of July.

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

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