New 52-week Lows Surge Over 1,000, Leaving the Market Short-term Oversold

Our intraday TrendCatcher strategy triggered a sell about an hour into
Monday's session. While risk was abnormally high at the time of the signal, I
did post the following an hour later... "11:25am ET: If you're on the
sidelines but looking for a way to participate with limited risk, here's one
possibility... enter short on a break to new session lows (SPX 1164) with an
1180 stop. If the S&P falls to new lows, the downtrend should be strong enough
to prevent a move back over the interim high." It was about an hour after this
post that the S&P did move to new session lows below 1164. Shortly after Noon
ET, I noted in the intraday updates that "NYSE TICK action [is] particularly
one-sided today as buyers are nowhere in sight. Cumulative TICK on track to
exceed -100,000." Indeed, the slope of the NYSE TICK turned even more negative
in afternoon trading, with our Cumulative TICK indicator closing at -154,500,
its lowest settlement of the year. TICKscore closed at a similarly weak -59 as
institutions remained heavy sellers throughout Monday's session The NYSE
advance/decline ratio closed at an incredibly low .05 as the number of
decliners outpaced advancers by a 20:1 margin. The lopsided breadth sent the
cumulative breadth line into new lows for the year. Note that cumulative
breadth gave an early warning last week when it fell into new lows for the
year even as the S&P was trying to hold.

Short-term, there's reason to expect a bounce over the short-term. Volume
associated with declining issues accounted for 98% of total volume on the
NYSE. Since the '87 crash, there have been twelve 95%+ down volume sessions,
all of which were followed by a higher S&P close the following session.
Additionally, today's 10% plunge for the Nasdaq100 sent the NDX 14-day RSI
into technically oversold territory (<30), a sign the Nasdaq is poised for a
short-term bounce. The last thirty instances in which the NDX 14-day RSI
closed under 30 are listed in the table below, followed by the date when the
RSI closed back over 30 and the performance of the Nasdaq in this time frame.
Note that in 25 out of 30 cases, or 83% of the time, the oversold condition
led to a short-term bounce within the next two sessions...

Nasdaq100 (NDX) 14-day RSI Closes Under 30
09/29/08... NDX ??? when RSI >30
09/17/08... NDX +4.0% when RSI >30 (one session)
09/09/08... NDX +1.0% when RSI >30 (one session)
01/22/08... NDX +1.7% when RSI >30 (two sessions)
01/17/08... NDX +0.1% when RSI >30 (one session)
01/08/08... NDX +2.0% when RSI >30 (one session)
06/12/06... NDX +0.7% when RSI >30 (one session)
05/16/06... NDX -1.5% when RSI >30 (seven sessions)
04/15/05... NDX +0.1% when RSI >30 (one session)
01/24/05... NDX +0.7% when RSI >30 (one session)
08/06/04... NDX +0.3% when RSI >30 (one session)
07/02/02... NDX +3.3% when RSI >30 (one session)
05/03/02... NDX +7.7% when RSI >30 (three sessions)
04/29/02... NDX +2.4% when RSI >30 (one session)
09/17/01... NDX -0.3% when RSI >30 (twelve sessions)
09/06/01... NDX +0.3% when RSI >30 (two sessions)
04/03/01... NDX +8.6% when RSI >30 (two sessions)
03/12/01... NDX +6.5% when RSI >30 (one session)
02/28/01... NDX +3.1% when RSI >30 (one session)
10/11/00... NDX +5.7% when RSI >30 (two sessions)
04/14/00... NDX +10.0% when RSI >30 (one session)
08/31/98... NDX +6.6% when RSI >30 (one session)
10/27/97... NDX +7.0% when RSI >30 (one session)
07/15/96... NDX +4.0% when RSI >30 (two sessions)
06/24/94... NDX +2.7% when RSI >30 (one session)
04/13/94... NDX -0.1% when RSI >30 (six sessions)
03/29/94... NDX +1.7% when RSI >30 (four sessions)
02/22/93... NDX +2.9% when RSI >30 (two sessions)
02/16/93... NDX +0.4% when RSI >30 (two sessions)
06/17/92... NDX +1.2% when RSI >30 (two sessions)
04/02/92... NDX +2.2% when RSI >30 (two sessions)

For this setup to be fulfilled Tuesday, the NDX needs to close at 1512.70 or
higher.

New 52-week lows surged to over 1,000 issues on the big board, usually a sign
that a short-term bottom is nearby. There have been 21 separate instances
since 1965 in which the NYSE initially recorded 700 or more new 52-week lows.
Each of these instances is noted in the table below, along with the S&P's
performance over the next three sessions. Note that in 17 out of 21
occurrences, the S&P was higher three sessions later. While the sample size is
too small to be considered statistically significant, it's noteworthy that the
average gain was 3.4% over the next three sessions, while the average loss was
3.1%, so it looks probable that we'll continue to see outsized moves as this
week unfolds.

New 52-week Lows Exceeds 700 on the NYSE
09/29/08... S&P500 ??? three sessions later
09/15/08... S&P500 +1.2% three sessions later
07/11/08... S&P500 +0.5% three sessions later
03/17/08... S&P500 +4.1% three sessions later
01/22/08... S&P500 +1.5% three sessions later
01/09/08... S&P500 +0.5% three sessions later
08/15/07... S&P500 +2.8% three sessions later
07/26/07... S&P500 -1.9% three sessions later (*)
05/07/04... S&P500 -0.1% three sessions later
07/24/02... S&P500 +6.6% three sessions later
09/21/01... S&P500 +4.3% three sessions later
10/08/98... S&P500 +3.7% three sessions later
08/27/98... S&P500 -4.6% three sessions later (*)
08/23/90... S&P500 +4.7% three sessions later
10/19/87... S&P500 +10.3% three sessions later
03/27/80... S&P500 +4.0% three sessions later
05/21/73... S&P500 +4.3% three sessions later
05/25/70... S&P500 +6.2% three sessions later
05/21/70... S&P500 -4.0% three sessions later (*)
05/14/70... S&P500 +0.0% three sessions later
07/28/69... S&P500 +1.8% three sessions later
08/29/66... S&P500 +4.3% three sessions later

Monday's massively lopsided breadth statistics sent the NYSE McClellan
Oscillator deep into oversold territory (below -200), usually a sign that the
market is at or near a short-term bottom. The last 30 instances in which the
McClellan initially closed below the -200 level are listed in the table below,
along with the S&P's performance three trading days later. Note that in 22 out
of 30 cases, or 73% of the time, the S&P closed higher three sessions later.
That's significantly better than the 54% at-any-time odds of a higher S&P
three days later...

NYSE McClellan Oscillator closes below -200
09/29/08 -204... S&P ??? three days later
09/17/08 -263... S&P +4.4% three days later
07/15/08 -219... S&P +3.8% three days later
06/26/08 -224... S&P +0.1% three days later
06/23/08 -216... S&P -2.6% three days later (*)
06/11/08 -245... S&P +1.8% three days later
03/17/08 -253... S&P +4.1% three days later
03/07/08 -208... S&P +1.2% three days later
11/19/07 -254... S&P +0.5% three days later
11/09/07 -234... S&P +1.2% three days later
11/07/07 -213... S&P -2.5% three days later (*)
08/15/07 -257... S&P +2.8% three days later
08/03/07 -213... S&P +4.5% three days later
07/24/07 -228... S&P -3.4% three days later (*)
06/12/07 -253... S&P +2.7% three days later
06/07/07 -258... S&P +0.2% three days later
03/02/07 -228... S&P +0.3% three days later
05/17/06 -223... S&P -0.6% three days later
04/11/06 -200... S&P -0.1% three days later
10/12/05 -239... S&P +1.1% three days later
03/16/05 -229... S&P -0.4% three days later
01/05/05 -212... S&P +0.5% three days later
05/07/04 -275... S&P -0.1% three days later
04/29/04 -216... S&P +0.5% three days later
04/14/04 -249... S&P +0.7% three days later
02/04/04 -206... S&P +1.2% three days later
07/17/03 -239... S&P +0.6% three days later
06/23/03 -227... S&P +0.4% three days later
01/27/03 -237... S&P -0.3% three days later
10/09/02 -248... S&P +8.3% three days later
09/24/02 -212... S&P +1.0% three days later

The extent of any short-term bounce should be telling. With the McClellan
falling below -200 today, the S&P should at least be able to hold its own
heading into Thursday's close. If it can't and the S&P is trading down 0.5% or
more, it would have negative implications from an intermediate-term
perspective. Looking back at times when the short-term oversold McClellan
signal outlined in the table above led to a loss of 0.5% or more, the market
typically remained under pressure over the next week. Every occurrence since
1970 is noted in the table below...

NYSE McClellan <-200, S&P Down 0.5% Three Days Later
06/26/08... S&P500 -1.6% one week later
11/12/07... S&P500 -0.4% one week later
07/27/07... S&P500 -1.8% one week later
05/22/06... S&P500 -0.2% one week later
09/02/98... S&P500 -1.0% one week later
07/31/98... S&P500 -2.8% one week later
10/21/87... S&P500 -9.7% one week later
10/25/78... S&P500 -0.5% one week later

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

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