Generally Positive Indications for the Short-term, but Banks Remain Persistently Weak

Institutional selling remained heavy Tuesday. TICKscore settled at -86,
essentially matching Monday's lowest reading of the year at -89. Cumulative
TICK settled at -108,000. Despite the persistent selling, there were some
glimmers of hope in Tuesday's data. New 52-week lows declined on both the NYSE
and NASDAQ despite the fact that both indices settled in new lows for the
year. The last thirty times that both indices hit a one-month or better low
and new 52-week lows declined on both exchanges are listed in the table below.
Note that in 28 out of 30 cases, or 93% of the time, the S&P closed at a
subsequently higher level 2-4 trading days later, significantly greater than
the 70% at-any-time odds of a higher S&P 2-4 days later...

NDX & SPX Hit One-Month Lows, New 52-week Lows Decline
10/07/08... ???
09/17/08... Higher SPX close two sessions later
06/12/08... Higher SPX close two sessions later
01/23/08... Higher SPX close three sessions later
01/07/08... Higher SPX close three sessions later
11/12/07... Higher SPX close two sessions later
11/09/07... Higher SPX close two sessions later
07/31/07... Higher SPX close two sessions later
05/18/06... Higher SPX close two sessions later
01/03/06... Higher SPX close two sessions later
08/24/05... Higher SPX close three sessions later
04/18/05... Higher SPX close three sessions later
08/13/04... Higher SPX close two sessions later
07/23/04... Higher SPX close two sessions later
09/29/03... Higher SPX close two sessions later
08/05/03... Higher SPX close two sessions later
12/31/02... Higher SPX close two sessions later
10/08/02... Higher SPX close two sessions later
09/20/02... Higher SPX close four sessions later
09/18/01... No higher SPX close 2-4 sessions later
03/20/01... Higher SPX close four sessions later
12/21/00... Higher SPX close two sessions later
10/13/00... Higher SPX close four sessions later
10/18/99... Higher SPX close two sessions later
09/01/98... Higher SPX close four sessions later
08/28/98... No higher SPX close 2-4 sessions later
06/24/93... Higher SPX close two sessions later
02/17/93... Higher SPX close two sessions later
06/18/92... Higher SPX close two sessions later
06/26/90... Higher SPX close two sessions later
11/11/88... Higher SPX close two sessions later

Today's lower close marked the fifth consecutive down day for the S&P500,
generally a reliable indication that selling pressure is exhausted for the
short-term and that a rally is likely. The table below lists each of the last
thirty separate instances in which the S&P cash index settled lower five
consecutive days. Note that in 25 out of those 30 occurrences, or 83% of the
time, the S&P500 rallied the following day. That's significantly better odds
than the 53% at-any-time odds of a higher S&P close one day later...

S&P500 Closes Lower Five Consecutive Days
10/07/08... S&P500 ??? next day
01/22/08... S&P500 +2.1% next day
02/27/07... S&P500 +0.6% next day
03/24/04... S&P500 +1.6% next day
02/24/04... S&P500 +0.4% next day
01/22/03... S&P500 +1.0% next day
12/05/02... S&P500 +0.6% next day
09/03/02... S&P500 +1.8% next day
04/26/02... S&P500 -1.0% next day (*)
02/07/02... S&P500 +1.5% next day
09/21/01... S&P500 +3.9% next day
05/11/01... S&P500 +0.3% next day
02/23/01... S&P500 +1.8% next day
11/13/00... S&P500 +2.4% next day
10/12/00... S&P500 +3.3% next day
09/26/00... S&P500 -0.0% next day
05/23/00... S&P500 +1.8% next day
04/14/00... S&P500 +3.3% next day
10/15/99... S&P500 +0.5% next day
08/04/99... S&P500 +0.6% next day
04/19/99... S&P500 +1.3% next day
03/01/99... S&P500 -0.9% next day (*)
12/12/97... S&P500 +1.1% next day
12/16/96... S&P500 +0.7% next day
12/06/96... S&P500 +1.4% next day
06/14/96... S&P500 -0.1% next day
04/11/96... S&P500 +0.9% next day
02/20/96... S&P500 +1.2% next day
08/03/95... S&P500 +0.0% next day
11/23/94... S&P500 +0.5% next day
09/22/94... S&P500 -0.4% next day

Also noteworthy on a short-term basis is Tuesday's high closing TRIN of 3.07.
Historically, one-day TRIN readings in excess of 3.0 have been a good
indication that selling pressure is at a short-term exhaustion point. Out of
the past thirty occurrences stretching back to 1987, 80% led to a higher S&P
close the following session, with only two leading to an S&P down more than
0.5% at the next day's close...

NYSE TRIN Closes Above 3.0
10/07/08 TRIN 3.07... Next day S&P ???
01/15/08 TRIN 4.27... Next day S&P -0.6%
01/04/08 TRIN 4.23... Next day S&P +0.3%
10/19/07 TRIN 3.54... Next day S&P +0.4%
08/28/07 TRIN 3.23... Next day S&P +2.2%
08/03/07 TRIN 3.37... Next day S&P +2.4%
03/13/07 TRIN 3.49... Next day S&P +0.7%
02/27/07 TRIN 15.77... Next day S&P +0.6%
08/06/04 TRIN 3.24...Next day S&P +0.1%
03/22/04 TRIN 3.35...Next day S&P -0.1%
05/19/03 TRIN 3.47...Next day S&P -0.1%
03/24/03 TRIN 5.02...Next day S&P +1.2%
03/10/03 TRIN 5.81...Next day S&P -0.8% (*)
03/04/03 TRIN 3.70...Next day S&P +1.0%
12/27/02 TRIN 3.49...Next day S&P +0.5%
09/03/02 TRIN 3.42...Next day S&P +1.8%
04/11/02 TRIN 3.22...Next day S&P +0.7%
01/29/02 TRIN 3.06...Next day S&P +1.2%
04/03/01 TRIN 3.53...Next day S&P -0.3%
03/12/01 TRIN 3.42...Next day S&P +1.5%
04/14/00 TRIN 4.31...Next day S&P +3.3%
08/31/98 TRIN 3.32...Next day S&P +3.8%
01/09/98 TRIN 3.63...Next day S&P +1.2%
10/27/97 TRIN 10.20...Next day S&P +5.1%
11/15/91 TRIN 4.02...Next day S&P +0.7%
10/13/89 TRIN 4.19...Next day S&P +2.8%
08/22/88 TRIN 3.48...Next day S&P +0.1%
11/30/87 TRIN 4.64...Next day S&P +0.7%
10/26/87 TRIN 12.11...Next day S&P +2.4%
10/19/87 TRIN 14.07...Next day S&P +5.2%
10/16/87 TRIN 5.79...Next day S&P -20.5% (*)

Tuesday's dropoff in NYSE volume was also a short-term positive indication
given that it coincided with a 7:1 negative breadth session. In the table
below are the last thirty instances in which we've seen NYSE volume decline on
a 3:1 or better negative breadth day. Note that in 28 out of 30 cases, or 93%
of the time, the S&P posted a subsequently higher close within three trading
days, significantly better than the 72% at-any-time odds...

NYSE Decliners 3:1 over Advancers, NYSE Volume Down
10/07/08... ???
09/22/08... Higher SPX close three sessions later
09/17/08... Higher SPX close one session later
09/09/08... Higher SPX close one session later
08/25/08... Higher SPX close one session later
07/24/08... Higher SPX close one session later
04/11/08... Higher SPX close two sessions later
03/10/08... Higher SPX close one session later
03/06/08... Higher SPX close three sessions later
02/14/08... Higher SPX close one session later
12/14/07... Higher SPX close five sessions later
11/19/07... Higher SPX close one session later
11/15/07... Higher SPX close one session later
11/05/07... Higher SPX close one session later
05/10/07... Higher SPX close one session later
03/02/07... Higher SPX close two sessions later
01/05/07... Higher SPX close one session later
04/07/06... Higher SPX close one session later
08/05/05... Higher SPX close two sessions later
07/17/03... Higher SPX close one session later
06/23/03... Higher SPX close one session later
03/24/03... Higher SPX close one session later
03/10/03... Higher SPX close three sessions later
01/27/03... Higher SPX close one session later
10/09/02... Higher SPX close one session later
10/07/02... Higher SPX close one session later
09/19/02... Higher SPX close one session later
08/05/02... Higher SPX close one session later
07/22/02... Higher SPX close two sessions later
09/20/01... Higher SPX close two sessions later
09/18/00... Higher SPX close one session later

With the bond market selling off for the first time in a week, one would
normally expect firmness in the banking sector. These clearly aren't 'normal'
times, however, as the BKX fell 10% Tuesday to its lowest level since July.
Out of the roughly 250 sessions in which the BKX fell 2%+ in a single session,
only 15% of the time did the Ten-year Yield (TNX) gain 1% or more (meaning a
solid drop in treasury futures). When the bank sector and the bond market both
post a solid down day, it's generally a short-term negative sign for the stock
market in general. The table below lists each of the last thirty instances in
which the BKX fell 2% or more and the TNX gained 1% or more in the same
session. Note that in 25 out of 30 cases, or 83% of the time, the S&P posted a
subsequently lower close 1-2 days later. That's significantly higher than the
61% at-any-time odds of a lower SPX close (below today's settlement) within
two days.

Bank Index -2%, Bonds Down (TNX +1%)
10/07/08... ???
09/22/08... Lower SPX close one session later
07/11/08... Lower SPX close one session later
06/09/08... Lower SPX close one session later
05/21/08... Lower SPX close two sessions later
05/13/08... No lower SPX close within two sessions
03/27/08... Lower SPX close one session later
02/14/08... Lower SPX close two sessions later
02/04/08... Lower SPX close one session later
12/14/07... Lower SPX close one session later
05/07/04... Lower SPX close one session later
04/13/04... Lower SPX close one session later
06/20/02... Lower SPX close one session later
09/20/01... Lower SPX close one session later
01/12/01... No lower SPX close within two sessions
06/21/00... Lower SPX close one session later
04/27/00... Lower SPX close one session later
02/09/00... Lower SPX close two sessions later
01/18/00... Lower SPX close two sessions later
01/03/00... Lower SPX close one session later
11/29/99... Lower SPX close one session later
11/17/99... No lower SPX close within two sessions
09/27/99... Lower SPX close one session later
08/30/99... Lower SPX close one session later
08/06/99... Lower SPX close one session later
07/29/99... Lower SPX close one session later
05/27/99... No lower SPX close within two sessions
05/14/99... Lower SPX close two sessions later
05/06/99... No lower SPX close within two sessions
02/24/99... Lower SPX close one session later
02/04/99... Lower SPX close one session later

I would note, however, that this sell setup is running up against a flurry of
buy signals (see the board for an illustration), so it's difficult not to
maintain a bullish outlook short-term. From a longer-term perspective,
however, it's clear that the S&P has cleanly violated major trendline support,
as discussed in Monday's commentary. This suggests we should look for SPX 1075
to turn into potential long-term resistance as the S&P is back in its long-
term trendline channel.

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

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