S&P Up 5% in Two Weeks, But New High-Low Index Signals Caution for the Intermediate-term

Despite the seemingly strong session, institutional participation was light
Monday. TICKscore settled at +2, cumulative TICK +43,000. Trading volume
remained heavily lopsided towards NASDAQ issues. Note that the NASDAQ/NYSE
Volume Ratio continues to trade above 1.75, a level that has historically
represented unusually lopsided conditions (see longer-term chart). It's
clearly a speculative-driven rally, leaving open the possibility that the S&P
will fall back into its recent trading range over the short-term following
today's 'upside breakout'.

Note that the VIX-VXV Ratio is edging down towards sell territory at the .90
level. Keep an eye on this indicator in the days ahead.

The NYSE McClellan Oscillator is back in overbought territory (over +150) for
the second time in a week, a generally negative sign for the short-term (see
my August 5th column for a recent track record). This doesn't technically
trigger a sell, although one would be triggered if the McClellan holds above
+150 for a second consecutive session. For this to occur Tuesday, NYSE breadth
merely needs to settle in positive territory.

Interesting to note that despite the S&P gaining over 5% in the ten-day period
ending Monday, the New High-Low Index hasn't managed to top 40%, suggesting
we're probably not in the midst of a runaway move. A 5% up move with a High-
Low Index over 80% can signal the beginning of a runaway move, but with an
index under 80% (much less 40%), the chances decrease. The table below notes
each of the last thirty separate instances in which the S&P500 was up 5% from
its ten-day ago close and the New High-Low Index was under 80%, along with the
performance of the S&P500 two weeks later...

S&P500 +5% Over Two Weeks, New High-Low Index <80%
08/11/08... S&P500 ??? two weeks later
04/28/08... S&P500 +0.5% two weeks later
04/03/08... S&P500 -0.3% two weeks later
04/01/08... S&P500 -2.6% two weeks later
12/10/07... S&P500 -1.3% two weeks later
12/06/07... S&P500 -3.1% two weeks later
03/18/03... S&P500 -0.9% two weeks later
01/06/03... S&P500 -4.5% two weeks later
11/27/02... S&P500 -4.0% two weeks later
11/25/02... S&P500 -3.1% two weeks later
10/28/02... S&P500 -1.6% two weeks later
08/27/02... S&P500 -2.7% two weeks later
08/15/02... S&P500 -1.3% two weeks later
11/13/01... S&P500 -0.9% two weeks later
10/10/01... S&P500 +0.4% two weeks later
10/04/01... S&P500 -0.1% two weeks later
04/18/01... S&P500 +2.3% two weeks later (*)
10/31/00... S&P500 -3.3% two weeks later
06/09/00... S&P500 -1.1% two weeks later
06/07/00... S&P500 +0.5% two weeks later
05/01/00... S&P500 -1.1% two weeks later
03/21/00... S&P500 +0.1% two weeks later
03/16/00... S&P500 +2.0% two weeks later (*)
11/16/99... S&P500 -1.5% two weeks later
11/03/99... S&P500 +4.1% two weeks later (*)
08/24/99... S&P500 -1.4% two weeks later
07/09/99... S&P500 -3.3% two weeks later
05/03/99... S&P500 -1.1% two weeks later
04/12/99... S&P500 +0.1% two weeks later
04/07/99... S&P500 +0.7% two weeks later
03/15/99... S&P500 +0.2% two weeks later

Note the general theme of limited upside potential. In 20 out of 30 cases, or
67% of the time, the S&P was trading at a lower level two weeks later,
significantly greater than the 47% at-any-time odds for a lower S&P two weeks
later. Also noteworthy is that in only three cases out of the last thirty was
the S&P up 1% or more two weeks later, while it was down 1% or more sixteen
times.

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

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