New High-Low Index Triggers Another Intermediate-term Sell Signal

Stock indexes rebounded from a morning loss to settle higher Friday, with the Dow drawing another bearish ‘recovery day’ (see my December 3rd column). Institutional buying was modest – TICKscore settled at +34, Cumulative TICK +11,000. The Last Hour indicator surged nearly 300 points. It’s now retraced about 60% of the 2005-2007 decline (see long-term chart). You may recall it won’t signal a bottom is in place until it’s retraced the entire decline, so while some progress has been made, it’s premature to discuss a sustainable bottom. The same can be said of indicators such as the NASDAQ/NYSE Volume Ratio. They’re both moving in the right direction, but it will take time and most likely significantly lower prices to push them into bullish territory.

Short-term sell setups from the middle of last week remain in effect. We also saw an intermediate-term sell signal triggered on Friday based on the low new high-low index. If you’ll recall, this index is calculated by dividing the number of new 52-week highs by the sum of new highs + new lows. This figure is then smoothed with a 10-day moving average. Over the past ten days, the S&P has rallied over 5%. Yet the New High-Low Index remains at a low 13% as of Friday’s close. The table below lists each of the last thirty separate instances in which the S&P500 was up 5% from its ten-day ago close and the New High-Low Index was under 80%, along with the performance of the S&P500 two weeks later. Note the general theme of limited upside potential. In 23 out of 30 cases, or 77% of the time, the S&P was trading at a lower level two weeks later. That’s significantly greater than the 47% at-any-time odds of a lower S&P two weeks later…

S&P500 +5% Over Two Weeks, New High-Low Index <80%
12/05/08… S&P500 ??? two weeks later
11/07/08… S&P500 -14.1% two weeks later
11/04/08… S&P500 -14.6% two weeks later
08/11/08… S&P500 -3.0% two weeks later
04/28/08… S&P500 +0.5% two weeks later
04/03/08… S&P500 -0.3% two weeks later
04/01/08… S&P500 -2.6% two weeks later
12/10/07… S&P500 -1.3% two weeks later
12/06/07… S&P500 -3.1% two weeks later
03/18/03… S&P500 -0.9% two weeks later
01/06/03… S&P500 -4.5% two weeks later
11/27/02… S&P500 -4.0% two weeks later
11/25/02… S&P500 -3.1% two weeks later
10/28/02… S&P500 -1.6% two weeks later
08/27/02… S&P500 -2.7% two weeks later
08/15/02… S&P500 -1.3% two weeks later
11/13/01… S&P500 -0.9% two weeks later
10/10/01… S&P500 +0.4% two weeks later
10/04/01… S&P500 -0.1% two weeks later
04/18/01… S&P500 +2.3% two weeks later (*)
10/31/00… S&P500 -3.3% two weeks later
06/09/00… S&P500 -1.1% two weeks later
06/07/00… S&P500 +0.5% two weeks later
05/01/00… S&P500 -1.1% two weeks later
03/21/00… S&P500 +0.1% two weeks later
03/16/00… S&P500 +2.0% two weeks later (*)
11/16/99… S&P500 -1.5% two weeks later
11/03/99… S&P500 +4.1% two weeks later (*)
08/24/99… S&P500 -1.4% two weeks later
07/09/99… S&P500 -3.3% two weeks later
05/03/99… S&P500 -1.1% two weeks later

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

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