New 52-week Highs Drop Despite Big Gains for the S&P, NASDAQ

The Philadelphia Bank Index (BKX) closed up 14% Wednesday, which sounds impressive until you consider its still trading below its two-week ago close. Further strength in the BKX on Thursday could represent a selling opportunity given today’s FOMC announcement. Over the past decade, when the Bank Index has rallied 1% or more immediately following a ‘Fed day’, it’s typically represented a head-fake rather than the start of a sustained rally. There have been a total of nineteen instances since 1998, all of which are noted in the table below along with the performance of the Bank Index over the next week. Note that two-thirds of the time, the BKX was lower five trading days later, and in only two cases did the BKX manage a gain of more than 1.5%. It lost more than 1.5% nine times…

BKX +1% FOllowing FOMC Announcement Day
05/01/08… BKX -5.6% one week later
01/31/08… BKX -4.5% one week later
08/08/07… BKX -7.9% one week later
05/04/05… BKX -1.4% one week later
03/17/04… BKX -3.2% one week later
06/26/03… BKX -0.1% one week later
03/19/03… BKX -0.4% one week later
09/25/02… BKX +0.5% one week later
08/14/02… BKX +2.3% one week later (*)
06/27/02… BKX +0.4% one week later
05/08/02… BKX +1.5% one week later
01/31/02… BKX -6.5% one week later
06/28/01… BKX -2.1% one week later
05/16/01… BKX +1.4% one week later
03/22/00… BKX +1.7% one week later (*)
10/06/99… BKX -5.7% one week later
05/19/99… BKX -4.2% one week later
12/23/98… BKX -0.7% one week later
05/20/98… BKX -3.2% one week later

Remarkably, despite the S&P and Nasdaq100 both gapping up and trading over 3% above Tuesday’s highs, new 52-week highs declined on both the NYSE and NASDAQ. Since Nasdaq futures began trading, there have been 82 sessions in which both S&P and NDX futures posted an unfilled upside gap. Not once, until today, did we see a contraction in new 52-week highs on both exchanges.

When the S&P gains over 0.75% and makes higher highs and higher lows, you won’t typically see a drop in the number of new 52-week highs. When this does occur, it’s often a warning sign that the rally is on shaky ground. The last thirty times this pattern has occurred are noted in the table below, along with the S&P’s performance over the next three trading days. Note that in 20 out of the last 30 occurrences, or 67% of the time, the S&P500 was trading at a lower level three sessions later, significantly greater than the 46% at-any-time odds for a lower S&P three sessions later…

S&P +0.75% & Rally Day, New 52-week Highs Drop
01/28/09… S&P500 ???
01/02/09… S&P500 -2.7% three sessions later
11/28/08… S&P500 -2.9% three sessions later
11/24/08… S&P500 +5.2% three sessions later
11/04/08… S&P500 -7.4% three sessions later
10/31/08… S&P500 -1.7% three sessions later
10/13/08… S&P500 -5.7% three sessions later
07/16/08… S&P500 +1.2% three sessions later
07/08/08… S&P500 -2.7% three sessions later
05/15/08… S&P500 -0.7% three sessions later
05/12/08… S&P500 +1.4% three sessions later
03/18/08… S&P500 +1.4% three sessions later
02/13/08… S&P500 -1.4% three sessions later
01/24/08… S&P500 +0.8% three sessions later
01/10/08… S&P500 -2.8% three sessions later
11/23/07… S&P500 +2.0% three sessions later
07/28/06… S&P500 -0.0% three sessions later
07/03/06… S&P500 -1.2% three sessions later
02/08/06… S&P500 -0.2% three sessions later
09/02/04… S&P500 -0.2% three sessions later
04/05/04… S&P500 -1.0% three sessions later
05/06/03… S&P500 -0.1% three sessions later
04/23/03… S&P500 -0.5% three sessions later
03/19/03… S&P500 -1.1% three sessions later
09/25/02… S&P500 -2.9% three sessions later
09/06/02… S&P500 +1.7% three sessions later
08/22/02… S&P500 -2.9% three sessions later
08/15/02… S&P500 +0.8% three sessions later
08/06/02… S&P500 +5.7% three sessions later
05/17/02… S&P500 -1.9% three sessions later
09/24/01… S&P500 +1.5% three sessions later

Also suggesting limited upside potential on Thursday, advancing issues outnumbered decliners by more than a 3:1 margin on the NASDAQ exchange. Over the last decade, there have been 27 separate sessions in which advancing issues outnumbered declining issues by more than a 3:1 margin on the NASDAQ exchange. Each instance is noted in the table below, along with the performance of the NDX the following day. Note that in only two cases did the Nasdaq gain more than 0.5%…

Nasdaq Breadth 3:1 Positive
01/28/09… NDX ??? next day
12/31/08… NDX +4.3% next day (*)
12/16/08… NDX -1.4% next day
11/26/08… NDX -0.6% next day
11/24/08… NDX -1.0% next day
10/31/08… NDX -0.0% next day
10/13/08… NDX -4.5% next day
09/19/08… NDX -4.5% next day
07/16/08… NDX +0.5% next day
04/01/08… NDX -0.4% next day
03/18/08… NDX -2.6% next day
11/28/07… NDX +0.3% next day
11/23/07… NDX -2.0% next day
09/18/07… NDX +0.3% next day
08/29/07… NDX +0.5% next day
03/06/07… NDX -0.4% next day
10/12/06… NDX +0.5% next day
08/15/06… NDX +2.3% next day (*)
07/19/06… NDX -1.6% next day
06/29/06… NDX -0.7% next day
06/15/06… NDX -0.7% next day
03/12/04… NDX -2.2% next day
11/27/02… NDX -0.9% next day
10/15/02… NDX -4.2% next day
04/05/01… NDX -4.7% next day
01/03/01… NDX -2.7% next day
06/02/00… NDX -0.7% next day
04/18/00… NDX -3.6% next day

Finally, the recent action in the VXO (‘old’ VIX) is noteworthy given that it’s posted six straight lower highs. Should the VXO fail to climb above today’s high at 39.91 on Thursday, a short-term sell setup will be triggered. Historically, seven consecutive lower highs for the VXO has been a good indication of a short-term top in the S&P. Out of 26 separate occurrences since the VXO began trading, 25 led to a lower S&P close within the next five sessions. That 96% win rate is significantly above the 73% at-any-time odds of a lower S&P close within five days…

VXO Posts Seven Consecutive Lower Highs
11/04/08… Lower S&P close one session later
08/27/07… Lower S&P close one session later
04/10/07… Lower S&P close one session later
08/21/06… Lower S&P close two sessions later
05/24/05… Lower S&P close one session later
08/27/04… Lower S&P close one session later
03/02/04… Lower S&P close four sessions later
10/09/03… Lower S&P close one session later
04/15/03… Lower S&P close one session later
10/02/01… No lower close within five sessions
08/02/01… Lower S&P close one session later
04/19/01… Lower S&P close one session later
12/05/97… Lower S&P close one session later
11/06/95… Lower S&P close one session later
11/11/92… Lower S&P close three sessions later
09/03/92… Lower S&P close one session later
11/19/90… Lower S&P close one session later
10/22/90… Lower S&P close one session later
02/07/89… Lower S&P close one session later
08/02/88… Lower S&P close two sessions later
07/18/88… Lower S&P close one session later
07/15/87… Lower S&P close four sessions later
02/03/87… Lower S&P close five sessions later
12/23/86… Lower S&P close three sessions later
08/18/86… Lower S&P close one session later
04/21/86… Lower S&P close one session later

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

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