S&P Gives Up a 2%+ Gain to Finish Lower on the Session

Stock indexes surged higher Friday morning before giving back all of the gains
in a steep afternoon selloff. That marks only the eleventh time since 1980
that the S&P has given up a 2%+ gain. The table below notes every instance
since 1980 in which the S&P500 gained 2% or more on an intraday basis, but
finished the session with a gain of less than 0.5% (or a loss). While the
sample size is too small to be considered significant, it's noteworthy that
buyers typically re-emerged over the next five days...

S&P500 +2%+ intraday, Closes <+0.5%
10/03/08... S&P500 ??? five days later
04/07/03... S&P500 +0.6% five days later
10/20/98... S&P500 +0.1% five days later
10/06/98... S&P500 +1.0% five days later
12/10/87... S&P500 +4.0% five days later
10/28/87... S&P500 +6.7% five days later
01/23/87... S&P500 +1.5% five days later
08/18/82... S&P500 +8.3% five days later
08/16/82... S&P500 +11.5% five days later
12/18/80... S&P500 +2.7% five days later
03/26/80... S&P500 +4.1% five days later

Despite the late-day reversal that left the S&P in new lows for the year, new
52-week lows only edged higher, from 658 on Thursday to 678 on Friday. Note
from the chart that the peak in new 52-week lows was on September 16th and
17th. Since then we've seen successively 'lower highs' even as the S&P posted
a lower low on September 29th and an even lower low on Friday. This is a sign
of waning downside momentum. The majority of stocks hit bottom back in mid-
September, with fewer and fewer issues now following the major averages into
new lows. That's a positive divergence.

Friday marked the third consecutive lower close for the S&P. In recent years,
there's been a better-than-average chance of a higher settlement following
three straight lower closes. Out of the last 30 separate occurrences
stretching back to 2006, the S&P closed higher the next day 24 times. That 80%
win rate is far above the 54% at-any-time odds for a higher close the next
day. However, this is only a recent phenomenon. Running the same test in the
2000-2002 period, for instance, reveals only about 60% odds of a higher close
after three consecutive down days.

Noteworthy that the October fed funds futures contract is currently pricing in
100% odds of a 1/2 point cut to the fed funds target, indicating the potential
for an aggressive intermeeting rate cut prior to the next regularly scheduled
FOMC announcement on October 29th.

Friday's drop in big board volume has positive implications from an
intermediate-term perspective. The S&P closed at a fresh 52-week low, which
automatically tilts the odds in favor of higher prices over the intermediate
term. Approximately 70% of the time, the S&P will be trading higher two weeks
after a new 52-week low. But it's particularly interesting when the new
closing low is accompanied by a drop in volume (as was the case Friday). The
odds of a higher S&P two weeks later increase significantly in these cases.
The last thirty times that the S&P closed at a new 52-week low on a drop in
NYSE volume are listed in the table below. Note that in 26 cases, or 87% of
the time, the new 52-week low ended up leading to higher prices two weeks
later, significantly better than the 58% at-any-time odds for a higher S&P two
weeks later...

SPX Closes at New 52-week Low, NYSE Volume Down
10/03/08... S&P ??? two weeks later
09/17/08... S&P +0.4% two weeks later
07/14/08... S&P +0.5% two weeks later
07/09/08... S&P +3.0% two weeks later
07/02/08... S&P -0.1% two weeks later
03/10/08... S&P +6.3% two weeks later
03/06/08... S&P +1.9% two weeks later
10/09/02... S&P +15.4% two weeks later
10/07/02... S&P +14.6% two weeks later
07/22/02... S&P +1.8% two weeks later
07/18/02... S&P +0.4% two weeks later
07/16/02... S&P +0.2% two weeks later
09/20/01... S&P +8.6% two weeks later
09/18/01... S&P +1.8% two weeks later
03/09/01... S&P -7.6% two weeks later
02/23/01... S&P -1.0% two weeks later
11/22/00... S&P +1.6% two weeks later
09/24/90... S&P +2.9% two weeks later
08/22/90... S&P +1.2% two weeks later
12/04/87... S&P +11.3% two weeks later
07/24/84... S&P +10.1% two weeks later
07/23/84... S&P +9.2% two weeks later
05/29/84... S&P +1.3% two weeks later
05/23/84... S&P +1.2% two weeks later
08/11/82... S&P +14.6% two weeks later
08/10/82... S&P +12.2% two weeks later
08/06/82... S&P +9.0% two weeks later
08/04/82... S&P +2.3% two weeks later
07/30/82... S&P -3.0% two weeks later
06/21/82... S&P +0.1% two weeks later
03/08/82... S&P +5.1% two weeks later

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

 Print This Post