Unfilled Upside Gap for S&P Futures on Light Volume a Short-term Negative Sign

S&P futures posted an unfilled upside gap Friday as speculators remained
active buyers. Note, however, that NYSE volume once again hit a new low for
the year, calling into question the lasting power of the current rally phase.
Since 1997, there have been a total of 124 sessions in which the front-month
S&P futures contract posted an unfilled upside gap. Only 38 of these
occurrences (less than one- third) coincided with a decrease in NYSE volume
from the previous session. Those occurrences share a common theme - they tend
to relate to short-term tops in the S&P, either immediately or after another
day or so of gains. The last thirty instances of this pattern are noted in the
table below. Note that in 26 out of 30 cases, or 87% of the time, the S&P
posted a subsequently lower close within the next three sessions. That's
significantly better than the 69% at-any-time odds of a lower S&P close within
three days...

Unfilled Upside Gap for S&Ps & Dropoff in NYSE Volume
08/22/08... ???
03/24/08... Lower S&P close two sessions later
03/18/08... Lower S&P close one session later
12/24/07... Lower S&P close two sessions later
08/17/07... Lower S&P close one session later
07/03/07... No lower close within three sessions
06/15/06... Lower S&P close one session later
05/05/06... Lower S&P close one session later
05/26/05... Lower S&P close two sessions later
10/04/04... Lower S&P close three sessions later
02/18/03... Lower S&P close one session later
10/11/02... No lower close within three sessions
07/29/02... Lower S&P close three sessions later
07/05/02... Lower S&P close one session later
06/17/02... Lower S&P close two sessions later
09/24/01... No lower close within three sessions
04/05/01... Lower S&P close one session later
03/26/01... Lower S&P close two sessions later
11/14/00... Lower S&P close two sessions later
10/19/00... No lower close within three sessions
03/03/00... Lower S&P close one session later
01/10/00... Lower S&P close one session later
12/23/99... Lower S&P close one session later
10/29/99... Lower S&P close one session later
10/22/99... Lower S&P close one session later
10/04/99... Lower S&P close one session later
09/27/99... Lower S&P close one session later
09/03/99... Lower S&P close one session later
06/04/99... Lower S&P close two sessions later
04/05/99... Lower S&P close one session later
11/27/98... Lower S&P close one session later

Another bearish sign for the short-term was the fact that breadth settled
better than 2:1 positive despite the unusually light volume. Typically, a
lopsided positive breadth day coincides with average to above-average volume,
not multi-month lows. Looking back at instances in which NYSE breadth closed
2:1 positive and big board volume was the lightest of the past month, the S&P
has usually reversed course and posted a subsequently lower close within the
next couple of sessions. All occurrences of this setup since 1995 are listed
in the table below. Note that in 21 out of 24 cases, or 88% of the time, the
S&P posted a lower close within two days, significantly greater than the 61%
at-any-time odds of a lower S&P close within two sessions...

Breadth 2:1 positive, Volume Lightest of Past Month
08/22/08... ???
05/12/08... Lower S&P close one day later
12/24/07... Lower S&P close two days later
11/23/07... Lower S&P close one day later
08/24/07... Lower S&P close one day later
05/25/07... No lower close within two days
12/26/06... No lower close within two days
07/03/06... Lower S&P close one day later
05/26/06... Lower S&P close one day later
05/27/05... Lower S&P close one day later
05/09/05... Lower S&P close one day later
11/24/04... Lower S&P close two days later
08/27/04... Lower S&P close one day later
02/06/04... Lower S&P close one day later
04/14/03... Lower S&P close two days later
02/18/03... Lower S&P close one day later
08/26/02... Lower S&P close one day later
07/05/02... Lower S&P close one day later
02/11/02... Lower S&P close one day later
11/23/01... Lower S&P close two days later
11/24/00... Lower S&P close two days later
08/11/00... No lower close within two days
07/03/00... Lower S&P close one day later
05/28/99... Lower S&P close one day later
07/03/97... Lower S&P close one day later

Finally, I'd note that speculative participation is running unusually high, a
red flag from a longer-term perspective. Note that the 20-day moving average
of the NASDAQ/NYSE Volume Ratio is running even higher than in May of '08 and
October '07, both of which preceded intermediate-term topping phases in the
market.

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

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