When the S&P500 Closes Lower Immediately Following the Labor Day Holiday

The session immediately following the Labor Day holiday can be a telling
indicator of future market direction. Going back to 1970, there have been a
total of 18 years in which the S&P closed lower immediately following the
holiday break. In general, this has had negative implications for stocks over
the remainder of the month. Each occurrence is noted in the table below, along
with the S&P’s performance through the last trading day of September…

S&P500 Closes Lower Following the Labor Day Holiday
09/02/08 S&P closes down… S&P ??? end of September
09/03/02 S&P closes down… S&P -7.2% end of September
09/04/01 S&P closes down… S&P -8.1% end of September
09/05/00 S&P closes down… S&P -4.7% end of September
09/07/99 S&P closes down… S&P -5.0% end of September
09/07/93 S&P closes down… S&P +0.1% end of September
09/08/92 S&P closes down… S&P +0.8% end of September
09/03/91 S&P closes down… S&P -1.1% end of September
09/05/89 S&P closes down… S&P -1.0% end of September
09/08/87 S&P closes down… S&P +2.6% end of September
09/02/86 S&P closes down… S&P -6.9% end of September
09/03/85 S&P closes down… S&P -3.1% end of September
09/04/84 S&P closes down… S&P +0.7% end of September
09/07/82 S&P closes down… S&P -0.8% end of September
09/08/81 S&P closes down… S&P -1.5% end of September
09/04/79 S&P closes down… S&P +1.8% end of September
09/02/75 S&P closes down… S&P -1.9% end of September
09/03/74 S&P closes down… S&P -9.9% end of September
09/05/72 S&P closes down… S&P -0.6% end of September

Note that in 13 out of 18 occurrences, or 72% of the time, the S&P proceeded
to trade lower heading into the end of the month. In only two cases out of
eighteen did the S&P manage a gain of 1% or more, while it fell 1% or more a
total eleven times. This tends to suggest limited upside potential for the S&P
over the next four weeks, with the upper end of the trading range around SPX
1300 likely to hold through September.

Note from the long-term chart of NYSE volume that the 20-day moving average is
at its lowest level since 2001. Once in 2004 and a couple of times in the 70′s
NYSE volume hit a three-year low, but this is the first time in the last fifty
years we’ve seen it hit a 5-year+ low. Volume is not just low, it’s really
low.

As I noted in my last commentary on August 27th, the S&P needed to hold above
1281 today to trigger an intermediate-term bullish setup. That didn’t happen,
leaving the market stuck in its trading range. As I mentioned in my August
26th column, “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…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.”

On a short-term basis, it’s worth noting that the Nasdaq Volatility Index
(VXN) closed over its upper bollinger band Tuesday, setting up a potential
one-day buy setup at Wednesday’s close if volatility remains elevated. Keep an
eye on VXN 26, as a close above this level Wednesday would keep the VXN in
statistically overbought territory for a second consecutive session.
Historically, this has been a decent indication of a forthcoming one-day
bounce. We only have historical data on the VXN since the beginning of 2001,
but since that time we’ve seen a total of 25 separate instances in which the
VXN closed over its upper band two days running. All of these occurrences are
noted in the table below. Note that in 20 out of 25 cases, or 80% of the time,
the NDX proceeded to close higher the following session…

VXN Over Its Upper Band Two Consecutive Sessions
06/09/08… Nasdaq100 -0.4% next session
03/17/08… Nasdaq100 +4.4% next session
11/09/07… Nasdaq100 -2.6% next session
10/22/07… Nasdaq100 +2.2% next session
10/16/07… Nasdaq100 +1.3% next session
08/01/07… Nasdaq100 +1.1% next session
07/27/07… Nasdaq100 +0.9% next session
02/28/07… Nasdaq100 -0.5% next session
07/14/06… Nasdaq100 +0.4% next session
05/18/06… Nasdaq100 +0.9% next session
05/15/06… Nasdaq100 -0.7% next session
04/12/06… Nasdaq100 +0.4% next session
01/23/06… Nasdaq100 +0.6% next session
01/18/06… Nasdaq100 +0.8% next session
01/10/06… Nasdaq100 +0.8% next session
08/08/05… Nasdaq100 +0.7% next session
04/18/05… Nasdaq100 +0.8% next session
07/26/04… Nasdaq100 +1.7% next session
04/30/04… Nasdaq100 +1.0% next session
03/11/04… Nasdaq100 +2.1% next session
11/18/03… Nasdaq100 +1.0% next session
06/09/03… Nasdaq100 +1.5% next session
06/11/02… Nasdaq100 +2.0% next session
05/06/02… Nasdaq100 -0.2% next session
09/07/01… Nasdaq100 +0.8% next session

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

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