Back-to-Back NR10 Days for the SOX Index Suggests an Outsized Move is Right Around the Corner

Despite the solid up day for the market, semiconductors were noticeable
laggards. The SOX posted both an inside day and a second consecutive NR10 day,
meaning for the past two days in a row, the intraday range for the
Semiconductor Index has been the narrowest of the last ten sessions.
Historically, back-to-back NR10 bars often means a big move is right around
the corner. The last thirty times that the SOX index posted two consecutive
NR10 days are listed in the table below, along with the performance of the SOX
over the following two sessions. Note that in 20 out of 30 cases, or 66% of
the time, the SOX gained or lost 2% or more over the next two sessions. That's
significantly higher than the 37% at-any-time odds for an absolute move of 2%+
over the next two days.

Back-to-back NR10 Days for the Semiconductor Index (SOX)
10/20/08... SOX ??? two sessions later
05/29/08... SOX +0.6% two sessions later
01/30/08... SOX +5.8% two sessions later
12/26/07... SOX -2.0% two sessions later
09/14/07... SOX +2.3% two sessions later
05/29/07... SOX +1.1% two sessions later
01/30/07... SOX +0.4% two sessions later
12/28/06... SOX -0.8% two sessions later
06/26/06... SOX -4.3% two sessions later
02/27/06... SOX +3.5% two sessions later
02/16/06... SOX -4.1% two sessions later
06/22/05... SOX -1.5% two sessions later
02/02/05... SOX +3.0% two sessions later
12/13/04... SOX +2.1% two sessions later
11/26/04... SOX -1.7% two sessions later
08/27/04... SOX -3.0% two sessions later
08/10/04... SOX -7.1% two sessions later
05/21/04... SOX +3.7% two sessions later
12/26/03... SOX +2.2% two sessions later
12/22/03... SOX +1.4% two sessions later
06/30/03... SOX +4.3% two sessions later
02/04/03... SOX -1.4% two sessions later
11/18/02... SOX +5.8% two sessions later
08/12/02... SOX +3.2% two sessions later
07/19/02... SOX -6.8% two sessions later
07/30/01... SOX +5.1% two sessions later
05/02/01... SOX -4.6% two sessions later
04/26/01... SOX +8.3% two sessions later
11/22/00... SOX +1.3% two sessions later
11/06/00... SOX -10.9% two sessions later
06/09/00... SOX +0.2% two sessions later

This doesn't tell us what to expect from a directional standpoint, but it does
suggest the upcoming move could be big.

As I discussed in today's intraday updates, the S&P easily outperformed the
banking sector, which begrudgingly posted an up day after trading in negative
territory for most of Monday's session. When the S&P closes up 1% or more and
doubles the performance of the BKX, as was the case today, the S&P typically
reverses course and closes at a lower level within the next couple of days.
The last thirty occurrences are listed in the table below. Note that in 25
cases, or 83% of the time, the S&P closed below the setup day's settlement
within the next two sessions. That's much higher than the S&P's 62% at-any-
time odds, indicating significant underperformance by the bank sector on a
solid up day has short- term bearish implications...

SPX Up 1%+, Doubles Performance of BKX
10/20/08... ???
10/13/08... Lower SPX close one session later
06/13/08... Lower SPX close two sessions later
03/24/08... Lower SPX close two sessions later
02/13/08... Lower SPX close one session later
01/14/08... Lower SPX close one session later
10/31/07... Lower SPX close one session later
08/24/07... Lower SPX close one session later
08/22/07... Lower SPX close one session later
03/06/07... Lower SPX close one session later
05/25/06... Lower SPX close two sessions later
04/21/05... Lower SPX close one session later
11/12/03... Lower SPX close one session later
05/09/03... No lower close within two sessions
04/10/02... Lower SPX close one session later
10/03/01... Lower SPX close one session later
08/24/01... Lower SPX close one session later
07/25/01... No lower close within two sessions
06/05/01... Lower SPX close one session later
05/21/01... Lower SPX close one session later
04/25/01... No lower close within two sessions
04/19/01... Lower SPX close one session later
04/17/01... No lower close within two sessions
01/18/01... Lower SPX close one session later
12/27/00... Lower SPX close two sessions later
11/14/00... Lower SPX close two sessions later
08/07/00... Lower SPX close two sessions later
06/13/00... No lower close within two sessions
05/05/00... Lower SPX close one session later
04/07/00... Lower SPX close one session later
03/09/00... Lower SPX close one session later

Monday's light volume also points to a likely close below today's settlement.
Breadth settled 5:1 positive, yet big board volume was down over 25% from
Friday's 1.7 billion shares. It's generally been a negative sign for the near-
term when volume contracts so sharply on a lopsided positive breadth session.
Over the past decade there have been 25 separate occurrences of volume
declining 20%+ on a 2:1 breadth day, 20 of which led to a lower S&P close
within the next two sessions...

2:1 Positive Breadth & NYSE Volume Down 20%+
10/20/08... ???
10/13/08... Lower S&P close one session later
03/24/08... Lower S&P close two sessions later
01/14/08... Lower S&P close one session later
12/24/07... Lower S&P close two sessions later
11/23/07... Lower S&P close one session later
06/01/07... Lower S&P close two sessions later
05/25/07... No lower close within next two days
03/19/07... No lower close within next two days
03/15/07... Lower S&P close one session later
07/03/06... Lower S&P close one session later
05/26/06... Lower S&P close one session later
05/25/06... Lower S&P close two sessions later
11/24/04... Lower S&P close two sessions later
05/11/04... No lower close within next two days
03/12/04... Lower S&P close one session later
10/25/02... Lower S&P close one session later
07/05/02... Lower S&P close one session later
06/17/02... Lower S&P close two sessions later
01/31/02... Lower S&P close one session later
11/23/01... Lower S&P close two sessions later
09/24/01... No lower close within next two days
12/22/00... No lower close within next two days
11/24/00... Lower S&P close two sessions later
07/03/00... Lower S&P close one session later
10/12/98... Lower S&P close one session later

NASDAQ volume also hit its lowest level in over two weeks despite 2:1 positive
breadth on the NASDAQ exchange. Typically, a lopsided breadth session will
coincide with increasing volume, or at least average volume. There have only
been nine instances over the last decade in which breadth on the Nasdaq was at
least 2:1 positive and Nasdaq volume came in at a two-week or better low. In
every case but one the Nasdaq was trading at a lower level three sessions
later...

Nasdaq Breadth 2:1 Positive, Volume at Two-Week Low
10/20/08... Nasdaq ??? three sessions later
08/22/08... Nasdaq -1.6% three sessions later
11/23/07... Nasdaq +3.3% three sessions later
05/25/06... Nasdaq -1.3% three sessions later
01/31/05... Nasdaq -0.8% three sessions later
01/14/05... Nasdaq -3.0% three sessions later
03/17/04... Nasdaq -3.3% three sessions later
07/05/02... Nasdaq -9.6% three sessions later
11/23/01... Nasdaq -1.3% three sessions later
11/24/00... Nasdaq -8.0% three sessions later

Another unusual fact about Monday's session is that the Nasdaq100 posted an
'NR10' day, meaning it was the narrowest range day of the past ten sessions.
That's not the kind of session that typically coincides with 2:1 positive
breadth. This combination has only occurred thirteen times since 1990, all of
which are listed in the table below...

Nasdaq Breadth 2:1 Positive & NDX 'NR10' Session
10/20/08... ???
08/28/08... Lower NDX close one session later
08/22/08... Lower NDX close one session later
11/23/07... Lower NDX close one session later
04/19/05... Lower NDX close one session later
01/31/05... Lower NDX close three sessions later
01/14/05... Lower NDX close two sessions later
07/29/04... Lower NDX close three sessions later
05/11/04... Lower NDX close one session later
03/17/04... Lower NDX close one session later
10/15/02... Lower NDX close one session later
05/14/02... Lower NDX close four sessions later
12/08/00... Lower NDX close two sessions later
11/24/00... Lower NDX close one session later

Note that the NDX posted a subsequently lower close within the next few
sessions in 12 out of 13 cases.

With today's 5:1 positive breadth session, the S&P's performance over the next
three sessions will be telling. As you may recall, it's been over two months
since we last saw the S&P trade higher in the three days following a 3:1+
positive breadth session. When that occurs, it's generally a bullish sign for
the intermediate-term (next two weeks), and it's been telling that this signal
hasn't been triggered during any of the recent 3:1+ positive breadth days.
Investors have been aggressively selling into these big positive breadth days
in recent months, and given the setups noted above, it looks like that trend
may continue.

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

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