S&P500 2-day RSI Closes Below 2.0

In my March 10th column I discussed the short-term bullish implications of a
2-period RSI for the Dow Industrials closing below 2.0. Not only did we see
that occur today, but the 2-day RSI for the S&P500 also settled under 2.0,
triggering an even more reliable short-term buy. The table below lists each of
the last thirty instances in which the S&P's 2-day RSI closed under 2.0, along
with the performance of the S&P500 by the time the RSI rose back over 2.0 and
the number of days elapsed...

S&P500 2-day RSI Closes Below 2.0
10/08/08... S&P500 ??? when 2day RSI >2
01/22/08... S&P500 +2.1% when 2day RSI >2 (one session)
01/04/08... S&P500 +0.3% when 2day RSI >2 (one session)
02/27/07... S&P500 +0.6% when 2day RSI >2 (one session)
06/13/06... S&P500 +0.5% when 2day RSI >2 (one session)
01/04/05... S&P500 -0.0% when 2day RSI >2 (two sessions)
08/06/04... S&P500 +0.1% when 2day RSI >2 (one session)
03/11/04... S&P500 +1.3% when 2day RSI >2 (one session)
01/22/03... S&P500 +1.0% when 2day RSI >2 (one session)
09/19/02... S&P500 +0.3% when 2day RSI >2 (one session)
09/03/02... S&P500 +1.8% when 2day RSI >2 (one session)
07/22/02... S&P500 +3.0% when 2day RSI >2 (two sessions)
04/26/02... S&P500 +0.1% when 2day RSI >2 (two sessions)
09/20/01... S&P500 +2.0% when 2day RSI >2 (two sessions)
09/07/01... S&P500 +0.6% when 2day RSI >2 (one session)
06/15/01... S&P500 -0.1% when 2day RSI >2 (two sessions)
02/09/01... S&P500 +1.2% when 2day RSI >2 (one session)
11/10/00... S&P500 +1.3% when 2day RSI >2 (two sessions)
10/11/00... S&P500 +0.8% when 2day RSI >2 (two sessions)
09/18/00... S&P500 +1.1% when 2day RSI >2 (one session)
04/14/00... S&P500 +3.3% when 2day RSI >2 (one session)
10/15/99... S&P500 +0.5% when 2day RSI >2 (one session)
08/04/99... S&P500 +0.6% when 2day RSI >2 (one session)
05/25/99... S&P500 +1.6% when 2day RSI >2 (one session)
04/19/99... S&P500 +1.3% when 2day RSI >2 (one session)
08/31/98... S&P500 +3.8% when 2day RSI >2 (one session)
07/23/98... S&P500 +0.1% when 2day RSI >2 (one session)
01/09/98... S&P500 +1.2% when 2day RSI >2 (one session)
10/27/97... S&P500 +5.1% when 2day RSI >2 (one session)
12/06/96... S&P500 +1.4% when 2day RSI >2 (one session)
06/17/96... S&P500 -0.5% when 2day RSI >2 (three sessions)

Note that in 27 out of 30 cases, or 90% of the time, the S&P posted a
subsequently higher close one or two sessions later. Also note that the worst
loss in 29 out of the last 30 cases was a mere 0.1%, suggesting limited
downside potential over the short-term.

In Tuesday's column I noted the short-term bullish implications of five
consecutive lower closes for the S&P cash index. While that setup failed to
lead to a higher close today, it's noteworthy that S&P futures have now
triggered the same pattern as of Wednesday's close. The reasoning is that the
futures managed a small gain back on October 1st, which makes Wednesday the
first time we've seen five straight down days for S&P futures since January.
And it's noteworthy that the likelihood of short-term strength is even more
apparent after five down days for the futures. The last thirty times that the
front-month contract initially closed down five days in a row are listed in
the table below. Note that in 29 out of 30 cases, or better than 95% of the
time, the S&Ps posted a higher close (above the setup day's close) within the
next two sessions. That's significantly better than the 65% at-any-time odds
for a higher close within two days...

S&P Futures Settle Lower Five Days in a Row
10/08/08... ???
01/22/08... Higher close one session later
02/27/07... Higher close one session later
06/09/06... No higher close within two sessions
01/05/05... Higher close one session later
02/24/04... Higher close one session later
01/22/03... Higher close one session later
12/05/02... Higher close one session later
04/05/02... Higher close one session later
02/07/02... Higher close one session later
09/21/01... Higher close one session later
06/14/01... Higher close one session later
11/13/00... Higher close one session later
10/12/00... Higher close one session later
05/23/00... Higher close one session later
04/14/00... Higher close one session later
09/24/99... Higher close one session later
07/23/99... Higher close two sessions later
04/19/99... Higher close one session later
07/24/98... Higher close one session later
02/29/96... Higher close one session later
02/20/96... Higher close one session later
09/07/94... Higher close one session later
05/09/94... Higher close one session later
04/18/94... Higher close one session later
07/06/93... Higher close one session later
06/08/93... Higher close one session later
04/23/93... Higher close two sessions later
10/07/92... Higher close one session later
03/30/92... Higher close one session later
01/21/92... Higher close one session later

Despite the 1%+ selloff for the S&P, the NASDAQ remained relatively well bid
Wednesday. When the S&P500 closes down 1%+, the Nasdaq100 (NDX) typically
suffers a similarly large loss given the large number of high beta stocks that
comprise the index. But when the NDX manages to hold its own in the face of a
solid down day for the S&P, it suggests limited selling pressure and/or a
rotational environment. Typically, the market is trading higher three sessions
later. Listed below is every instance since 1990 in which the NDX settled down
less than 0.5% (or managed a gain) on a day when the S&P fell over 1%. Note
that in 22 out of 26 cases, or 82% of the time the S&P was trading at a higher
level three sessions later...

S&P500 Drops 1%+, Nasdaq Down Less than 0.5%
10/08/08... S&P500 ??? three days later
08/12/08... S&P500 +0.7% three days later
07/31/08... S&P500 +1.4% three days later
07/15/08... S&P500 +3.8% three days later
05/23/08... S&P500 +1.6% three days later
06/13/06... S&P500 +2.3% three days later
05/12/05... S&P500 +1.2% three days later
03/09/05... S&P500 -0.0% three days later
04/16/03... S&P500 +3.6% three days later
01/22/03... S&P500 -3.5% three days later (*)
10/09/02... S&P500 +8.3% three days later
09/24/02... S&P500 +1.0% three days later
04/29/02... S&P500 +1.8% three days later
03/06/00... S&P500 +0.8% three days later
02/16/00... S&P500 -2.6% three days later (*)
05/27/99... S&P500 +1.1% three days later
01/14/99... S&P500 +3.7% three days later
07/09/97... S&P500 +1.2% three days later
03/13/97... S&P500 +0.0% three days later
04/10/96... S&P500 +1.4% three days later
02/20/96... S&P500 +2.9% three days later
01/10/96... S&P500 +0.2% three days later
06/24/94... S&P500 +1.1% three days later
04/01/91... S&P500 +2.3% three days later
01/09/91... S&P500 +0.3% three days later
01/02/91... S&P500 -3.4% three days later (*)
07/05/90... S&P500 +0.2% three days later

Putting aside the above study for the moment, it's noteworthy that just about
every one of the recently triggered short-term buy setups currently on the
board will be fulfilled on a close above SPX 996. That would leave the market
in a vulnerable position given the potential for a failed McClellan signal,
which will occur Thursday barring a rally back to the SPX 1053 area. This
would mark only the ninth time since 1970 that a -200 McClellan reading has
failed to lead to a flat-to-up S&P three sessions later. In each of the
previous occurrences, the market struggled over the next week...

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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