When the NDX is Down 2% & SPX is Up After Ten Trading Days

Stock indexes opened lower Tuesday but quickly found a bid as institutional
buyers remained active. TICKscore settled at a solid +28, reflecting heavy
buying pressure. Cumulative TICK closed at a similarly strong +81,000. Breadth
settled better than 2:1 positive, the third lopsided positive breadth session
in just the last week.

Volatility indexes took a beating with Tuesday’s rally. VXO settled down 11%
at 21.39, its fifth consecutive lower close. While not an outright sell signal
(for stocks), this does suggest limited upside potential the following
session. The last thirty times that the VXO initially posted five consecutive
lower closes are listed in the table below, along with the S&P500′s
performance the following session. Note the consistent theme of limited
upside. In only two cases out of thirty did the S&P gain more than 0.4% the
next day.

VXO Down Five Consecutive Days
07/22/08… S&P500 ??? next session
05/16/08… S&P500 +0.1% next session
12/24/07… S&P500 +0.1% next session
08/22/07… S&P500 -0.1% next session
06/19/07… S&P500 -1.4% next session
04/04/07… S&P500 +0.3% next session
03/12/07… S&P500 -2.0% next session
12/14/06… S&P500 +0.1% next session
11/20/06… S&P500 +0.2% next session
08/18/06… S&P500 -0.4% next session
01/27/06… S&P500 +0.1% next session
06/15/05… S&P500 +0.4% next session
05/20/05… S&P500 +0.4% next session
04/08/05… S&P500 +0.0% next session
05/24/04… S&P500 +1.6% next session (*)
02/26/04… S&P500 +0.0% next session
01/21/04… S&P500 -0.3% next session
07/02/03… S&P500 -0.8% next session
04/24/03… S&P500 -1.4% next session
01/06/03… S&P500 -0.7% next session
08/19/02… S&P500 -1.4% next session
02/13/02… S&P500 -0.2% next session
12/05/01… S&P500 -0.3% next session
10/03/01… S&P500 -0.3% next session
07/31/01… S&P500 +0.4% next session
04/16/01… S&P500 +1.0% next session (*)
11/17/00… S&P500 -1.8% next session
10/24/00… S&P500 -2.4% next session
02/04/00… S&P500 -0.0% next session
10/22/99… S&P500 -0.6% next session
04/26/99… S&P500 +0.2% next session

The S&P easily outperformed the NASDAQ, which barely managed to close in
positive territory despite a 4%+ selloff in the semiconductor sector. It’s
noteworthy that today’s strong SPX close pushed the index above its two-week
ago close, while the NASDAQ is still trading more than 2% below its two-week
ago close. It’s been over a year since we’ve last seen the S&P outperform the
Nasdaq by this wide a margin over any ten-trading-day period. While you might
expect the underperformance of the Nasdaq to have bearish implications, it’s
actually been the opposite in recent years. The S&P500 has had a noticeable
tendency to rally over the three-day period following this type of divergent
activity, suggesting a pause on Wednesday could be followed by further upside
heading into Friday. The table below highlights the past thirty instances in
which the NASDAQ100 initially closed 2% or more below its close ten days ago
while the S&P500 closed higher than its ten-day-ago close. Following this date
is the performance of the S&P500 over the next three sessions. Note that in 25
out of the last 30 cases, the S&P closed higher three days later…

NDX -2%, S&P Up Compared to Ten Days Ago
07/22/08… S&P ??? three days later
01/31/07… S&P +0.6% three days later
01/25/07… S&P +0.4% three days later
12/22/06… S&P +1.0% three days later
12/07/06… S&P +0.3% three days later
05/02/06… S&P +1.0% three days later
06/16/05… S&P +0.2% three days later
02/06/04… S&P +1.3% three days later
01/28/04… S&P +0.6% three days later
12/16/03… S&P +1.3% three days later
12/09/03… S&P +1.3% three days later
08/14/03… S&P +1.2% three days later
08/12/03… S&P +0.0% three days later
04/10/03… S&P +2.2% three days later
08/12/02… S&P +2.9% three days later
08/07/02… S&P +3.1% three days later
07/30/02… S&P -4.3% three days later
03/01/02… S&P +2.7% three days later
02/27/02… S&P +4.0% three days later
02/22/02… S&P +1.8% three days later
02/20/02… S&P +1.0% three days later
02/12/02… S&P -0.3% three days later
12/24/01… S&P +1.4% three days later
10/02/01… S&P +1.9% three days later
05/16/01… S&P +2.2% three days later
04/05/01… S&P +1.5% three days later
03/30/01… S&P -4.9% three days later
03/07/01… S&P -6.5% three days later
02/01/01… S&P -1.5% three days later
11/09/00… S&P -1.2% three days later
11/02/00… S&P +0.3% three days later

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

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