Unhealthy Combination: Light Institutional Participation and Heavy Speculative Participation

While the S&P outperformed Tuesday, it’s the Nasdaq that’s been the relative
outperformer in recent weeks. Compared to their respective three-week ago
closes, the S&P is down over 1% while the Nasdaq100 is up roughly 1%.
Historically, this type of relative outperformance by the Nasdaq has been a
short-term positive sign for the S&P. There have been a total of 39 separate
instances since 2000 in which the S&P500 was down 1%+ over the last three
weeks (fifteen trading days) while the NDX rallied in the same time frame. Out
of those 39 occurrences, 36 led to a subsequently higher S&P close within the
next three sessions. That 92% win rate is significantly above the 72% ‘at-any-
time’ odds of a higher S&P close within the next three days…

SPX -1% vs. Three Weeks Ago, NDX Higher
08/26/08… ???
06/13/08… Higher S&P close one session later
06/04/08… Higher S&P close one session later
05/27/08… Higher S&P close one session later
11/01/07… Higher S&P close one session later
10/30/07… Higher S&P close one session later
10/19/07… Higher S&P close one session later
07/26/07… No higher S&P close within three days
07/10/07… Higher S&P close one session later
06/20/07… Higher S&P close one session later
04/17/06… Higher S&P close one session later
04/12/06… Higher S&P close one session later
10/19/05… Higher S&P close three sessions later
10/27/04… Higher S&P close one session later
09/28/04… Higher S&P close one session later
05/21/04… Higher S&P close one session later
03/29/04… Higher S&P close one session later
07/24/03… Higher S&P close one session later
07/10/03… Higher S&P close one session later
07/03/03… Higher S&P close one session later
03/14/03… Higher S&P close one session later
03/04/03… Higher S&P close one session later
02/24/03… Higher S&P close one session later
02/19/03… Higher S&P close two sessions later
11/13/02… Higher S&P close one session later
10/11/02… Higher S&P close one session later
07/17/02… No higher S&P close within three days
12/13/01… Higher S&P close one session later
12/11/01… Higher S&P close one session later
10/31/01… Higher S&P close one session later
07/12/01… Higher S&P close one session later
06/28/00… Higher S&P close three sessions later
03/07/00… Higher S&P close one session later
02/18/00… Higher S&P close one session later
02/16/00… Higher S&P close one session later
02/09/00… Higher S&P close one session later
02/04/00… Higher S&P close two sessions later
02/02/00… Higher S&P close one session later
01/28/00… Higher S&P close one session later
01/20/00… No higher S&P close within three days

Looking out beyond the short-term, the market has been stuck in a trading
range between roughly SPX 1250 and 1300 for over a month now. With the S&P
currently right in the middle of that range, there isn’t a lot to lean on.
However, as I mentioned in columns late last week, the market’s upside
potential appears limited. Our TICKscore and Cumulative TICK indicators have
been making a series of lower highs over the past month, suggesting a steady
decline in institutional buying. At the same time, speculative participation
has been running unusually high, as seen by the elevated NASDAQ/NYSE Volume
Ratio. This generally unhealthy combination suggests the S&P could soon be
testing the lower end of its trading range.

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

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