SOX Underperformance a Short-term Negative

Stock indices settled higher Tuesday on modest institutional buying. TICKscore settled at +29, Cumulative TICK +37,000. Breadth settled 3:1 positive, sending the NYSE McCellan Oscillator back over the +150 level. That’s a sign the market is once again technically overbought. You may recall that this oscillator closed in overbought territory on back-to-back sessions at the end of Thanksgiving week, leading to the steep selloff on Monday. Now only two days later, it’s over +150 once again. As I’ve discussed previously, it’s particularly interesting when the McClellan exceeds +150 on two separate occasions within a one-week time frame. Typically, the second run from below +150 to above +150 coincides within a short-term topping phase, and the S&P is usually trading flat-to-down three days later…

McClellan Oscillator Exceeds +150 Second Time in Five Days
12/02/08… S&P ??? three sessions later
11/07/08… S&P -8.5% three sessions later
08/11/08… S&P -0.9% three sessions later
08/05/08… S&P +0.9% three sessions later
01/31/08… S&P -3.0% three sessions later
10/05/07… S&P +0.3% three sessions later
08/31/07… S&P +0.3% three sessions later
08/24/07… S&P -1.1% three sessions later
08/03/06… S&P -0.7% three sessions later
07/11/06… S&P -2.9% three sessions later
07/06/06… S&P -0.1% three sessions later
12/01/05… S&P -0.1% three sessions later
06/01/05… S&P -0.4% three sessions later
05/27/05… S&P +0.5% three sessions later
05/23/05… S&P +0.3% three sessions later
05/09/05… S&P -1.7% three sessions later
09/07/04… S&P +0.2% three sessions later
09/02/04… S&P -0.2% three sessions later
08/27/04… S&P -0.2% three sessions later
09/08/03… S&P -1.5% three sessions later
05/06/03… S&P -0.1% three sessions later
04/22/03… S&P -1.4% three sessions later
08/15/02… S&P +0.8% three sessions later
03/06/02… S&P +0.5% three sessions later
01/03/01… S&P -3.8% three sessions later
01/07/00… S&P -0.6% three sessions later
04/21/99… S&P +1.8% three sessions later (*)
10/29/98… S&P +2.3% three sessions later (*)
09/28/98… S&P -5.9% three sessions later
09/22/98… S&P +1.5% three sessions later (*)
07/08/98… S&P -0.1% three sessions later

Over the last thirty occurrences stretching back a decade, only 37% led to a higher S&P three sessions later. That’s significantly worse than the 55% at-any-time odds of a higher S&P three days later.

I’d add that should breadth close anywhere north of 3:2 negative on Wednesday, it would keep the McClellan over +150 for a second consecutive session, triggering the short-term sell setup recently discussed in Sunday’s column.

The Nasdaq100 managed a solid gain Tuesday, but the influential semiconductor sector was a noticeable laggard. The SOX only managed a small 1.3% gain, less than half of the 3.5% rally for the NDX. In the table below I’ve listed every case since 2000 in which both the NDX and SOX closed up at least 0.5%, but the NDX more than doubled the gain of the SOX. Note that in 17 out of 20 instances, the Nasdaq closed at a lower level two sessions later. Even when the Nasdaq managed to continue moving higher, gains amounted to 0.5% or less in every case but one, suggesting limited upside potential over the next couple of days…

NDX & SOX +0.5% or more & NDX Doubles SOX Gain
12/02/08… Nasdaq ??? two days later
09/11/08… Nasdaq -3.8% two days later
07/25/08… Nasdaq -0.1% two days later
07/08/08… Nasdaq -1.7% two days later
10/05/07… Nasdaq +1.0% two days later (*)
08/24/07… Nasdaq -3.2% two days later
02/27/06… Nasdaq -0.1% two days later
04/25/05… Nasdaq -0.9% two days later
10/18/04… Nasdaq -0.3% two days later
07/27/04… Nasdaq +0.5% two days later
12/01/03… Nasdaq -1.9% two days later
09/18/03… Nasdaq -2.4% two days later
03/25/03… Nasdaq -0.4% two days later
04/08/02… Nasdaq -2.1% two days later
05/02/01… Nasdaq -2.0% two days later
05/01/01… Nasdaq -2.2% two days later
03/27/01… Nasdaq -9.9% two days later
01/23/01… Nasdaq -4.9% two days later
08/24/00… Nasdaq +0.1% two days later
06/30/00… Nasdaq -3.0% two days later
05/05/00… Nasdaq -6.6% two days later

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

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