Underperformance by Equal Weight S&P Relative to SPX Points to Lower Prices Heading into Midweek

Institutions were better sellers Monday in light trade. TICKscore settled at -10, Cumulative TICK -30,676. Breadth settled 2:1 in favor of declining issues Monday, sending the NYSE McClellan Oscillator near (but not below) 100. The weakness of the Equal Weight S&P500 relative to the standard cap-weighted S&P was a negative development. The Equal Weight index fell nearly 3% Monday vs. a 1.8% drop for the SPX. Historically, such underperformance has not been a positive sign for the short-term. The last thirty instances in which the SPXEW underperformed the SPX by at least 0.7% are listed in the table below, along with the performance of the S&P over the next two sessions. Note that in 24 out of 30 cases, or 80% of the time, the S&P was trading at a lower level two sessions later. That’s significantly greater than the 50% at-any-time odds for a lower S&P close two days later…

SPX Outperforms Equal Weight S&P By >0.7%
12/22/08… S&P500 ??? two sessions later
11/18/08… S&P500 -12.4% two sessions later
11/10/08… S&P500 -7.3% two sessions later
10/23/08… S&P500 -6.5% two sessions later
10/02/08… S&P500 -5.2% two sessions later
09/22/08… S&P500 -1.8% two sessions later
07/24/08… S&P500 -1.5% two sessions later
03/17/08… S&P500 +1.7% two sessions later
10/03/05… S&P500 -2.5% two sessions later
03/25/03… S&P500 -0.7% two sessions later
12/04/02… S&P500 -0.6% two sessions later
11/08/02… S&P500 -1.3% two sessions later
11/07/02… S&P500 -2.9% two sessions later
11/05/02… S&P500 -1.4% two sessions later
10/16/02… S&P500 +2.8% two sessions later
10/09/02… S&P500 +7.5% two sessions later
10/01/02… S&P500 -3.4% two sessions later
07/31/02… S&P500 -5.2% two sessions later
07/26/02… S&P500 +5.9% two sessions later
07/17/02… S&P500 -6.4% two sessions later
07/02/02… S&P500 +4.3% two sessions later
06/12/02… S&P500 -1.3% two sessions later
05/08/02… S&P500 -3.1% two sessions later
09/26/01… S&P500 +3.4% two sessions later
09/17/01… S&P500 -2.2% two sessions later
09/10/01… S&P500 -5.5% two sessions later
03/27/01… S&P500 -2.9% two sessions later
03/13/01… S&P500 -2.0% two sessions later
01/18/01… S&P500 -0.4% two sessions later
01/03/01… S&P500 -3.7% two sessions later
12/05/00… S&P500 -2.4% two sessions later

SPY Volume did hit a two-week low Monday, reflecting the general absence of institutional participation. Given that the low volume coincided with a 2:1 negative breadth session, this does suggest conditions are likely to remain choppy heading into Friday’s close, with further weakness near-term potentially leading to a bounce around Christmas (see my December 15th column).

The potential for a bounce is also indicated by the fact that NYSE volume touched a three-week low Monday. The table below lists the last thirty occurrences in which breadth on the NYSE came in 2:1 or better in favor of declining issues and big board volume hit at least a three-week low. Following the date is the performance of the S&P500 over the next 2-3 trading days. Note that in 25 out of 30 cases stretching back to 1989, the S&P500 closed at a higher level 2-3 trading days later, suggesting we’ll see the S&P close back over today’s settlement of 871 in the Wednesday-Friday time frame. Also noteworthy is that with the exception of the last signal, losses amounted to 0.6% or less, suggesting limited downside potential over the short-term…

NYSE Breadth 2:1 Negative, Volume at Three-Week Low
12/22/08… S&P500 ???
10/21/08… S&P500 -8.2% three sessions later (*)
09/23/08… S&P500 +1.8% two sessions later
08/25/08… S&P500 +1.2% two sessions later
08/18/08… S&P500 -0.1% three sessions later
07/28/08… S&P500 +4.0% two sessions later
08/27/07… S&P500 -0.6% three sessions later (*)
03/27/07… S&P500 -0.5% three sessions later (*)
06/19/06… S&P500 +1.0% two sessions later
04/08/05… S&P500 +0.6% two sessions later
11/11/02… S&P500 +0.7% two sessions later
08/02/02… S&P500 +1.5% three sessions later
05/06/02… S&P500 +3.4% two sessions later
03/25/02… S&P500 +1.1% two sessions later
07/26/99… S&P500 +1.3% two sessions later
02/12/99… S&P500 +0.6% three sessions later
09/17/98… S&P500 +0.5% two sessions later
08/10/98… S&P500 +0.1% two sessions later
05/18/98… S&P500 +1.2% two sessions later
07/05/96… S&P500 -0.2% three sessions later
11/11/94… S&P500 +0.6% two sessions later
05/09/94… S&P500 +0.3% three sessions later
03/21/94… S&P500 -0.0% two sessions later
04/29/91… S&P500 +1.8% two sessions later
02/26/91… S&P500 +1.2% two sessions later
02/20/91… S&P500 +0.1% two sessions later
12/17/90… S&P500 +1.3% two sessions later
08/30/90… S&P500 +1.4% two sessions later
08/10/90… S&P500 +1.2% two sessions later
07/05/90… S&P500 +1.1% two sessions later
02/12/90… S&P500 +0.6% two sessions later

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

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