Short-term Negative, Intermediate-term Positive Implications

Stock indices settled with modest gains Friday in very thin trading. TICKscore
closed at -6, cumulative TICK -17,500, both indicating a bit of underlying
selling pressure. The short-term buy setup discussed in my last column on
Thursday was fulfilled with Friday's rally, leaving little on the board short-
term. But one development does suggest the potential for further downside
early this coming week. The semiconductor sector noticeably underperformed the
NASDAQ on Friday. The SOX index came within a point of touching a new 52-week
low in intraday trading Friday, and only managed to finish with a minor 0.6%
gain, less than half of the 1.6% gain for the Nasdaq100. In the table below
I've listed every case since 2000 in which both the NDX and SOX closed up at
least 0.5%, but the NDX more than doubled the gain of the SOX. Note that in 15
out of 18 instances, the Nasdaq closed at a lower level two sessions later.
Even when the Nasdaq managed to continue moving higher, gains amounted to 0.5%
or less in every case but one, suggesting limited upside potential as we head
into Tuesday's close...

NDX & SOX +0.5% or more & NDX Doubles SOX Gain
07/25/08... Nasdaq ??? two days later
07/08/08... Nasdaq -1.7% two days later
10/05/07... Nasdaq +1.0% two days later (*)
08/24/07... Nasdaq -3.2% two days later
02/27/06... Nasdaq -0.1% two days later
04/25/05... Nasdaq -0.9% two days later
10/18/04... Nasdaq -0.3% two days later
07/27/04... Nasdaq +0.5% two days later
12/01/03... Nasdaq -1.9% two days later
09/18/03... Nasdaq -2.4% two days later
03/25/03... Nasdaq -0.4% two days later
04/08/02... Nasdaq -2.1% two days later
05/02/01... Nasdaq -2.0% two days later
05/01/01... Nasdaq -2.2% two days later
03/27/01... Nasdaq -9.9% two days later
01/23/01... Nasdaq -4.9% two days later
08/24/00... Nasdaq +0.1% two days later
06/30/00... Nasdaq -3.0% two days later
05/05/00... Nasdaq -6.6% two days later

Intermediate-term setups continue to point higher heading into early August,
so I'd be on the lookout for waning downside momentum and/or an absence of
meaningful selling pressure if a selloff does materialize. Note that the
Investors Intelligence survey registered 49% bears in its latest survey, the
fourth consecutive week with a reading over 40%. That's usually marked a tough
time to turn bearish, at least for the next 1-2 weeks. The table below lists
every instance since 1970 in which the Investors Intelligence Bearish
Consensus initially held above 40% four consecutive weeks. Note that in 22 out
of 26 cases, or 85% of the time, the S&P posted a higher weekly close 1-2
weeks later, significantly better than the 62% at-any-time odds for a higher
S&P one or two weeks later...

InvInt Bearish Consensus Over 40% Four Consecutive Weeks
07/27/08... ???
10/16/98... Higher weekly S&P Close One Week Later
05/02/97... Higher weekly S&P Close One Week Later
08/16/96... Higher weekly S&P Close One Week Later
05/06/94... Higher weekly S&P Close Two Weeks Later
12/10/93... Higher weekly S&P Close One Week Later
08/31/90... Higher weekly S&P Close One Week Later
02/16/90... Higher weekly S&P Close Two Weeks Later
04/29/88... No higher weekly close within two weeks
11/20/87... No higher weekly close within two weeks
06/15/84... Higher weekly S&P Close One Week Later
01/15/82... Higher weekly S&P Close Two Weeks Later
07/31/81... Higher weekly S&P Close One Week Later
01/09/81... Higher weekly S&P Close One Week Later
04/03/80... Higher weekly S&P Close One Week Later
10/26/79... Higher weekly S&P Close One Week Later
08/10/79... Higher weekly S&P Close One Week Later
06/08/79... Higher weekly S&P Close One Week Later
03/02/79... Higher weekly S&P Close One Week Later
11/24/78... Higher weekly S&P Close One Week Later
02/03/78... Higher weekly S&P Close One Week Later
11/25/77... No higher weekly close within two weeks
12/20/74... Higher weekly S&P Close One Week Later
05/24/74... Higher weekly S&P Close Two Weeks Later
12/21/73... Higher S&P Close One Week Later
09/07/73... Higher weekly S&P Close Two Weeks Later
06/15/73... No higher weekly close within two weeks

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

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