Overbought to Kick Off the New Year, Speculators MIA
By
Rennie on Sunday, January 4th, 2009 at 5:04 pm
Institutional buyers surfaced in a big way Friday, lifting the S&P and Nasdaq over 3% in thin trading. TICKscore settled at +82, tying the highest recorded reading for all of last year. Cumulative TICK settled at a similarly impressive +181,000. That’s the highest Cumulative TICK reading we’ve seen in over a year, a positive sign from an intermediate-term perspective. The table below lists the last thirty instances in which the Cumulative TICK closed at its highest level of the past two months…
NYSE Cumulative TICK Hits a Two-Month High
01/02/09… S&P500 ??? two weeks later
10/13/08… S&P500 -15.4% two weeks later
07/29/08… S&P500 +2.1% two weeks later
07/16/08… S&P500 +3.1% two weeks later
04/16/08… S&P500 +1.5% two weeks later
03/18/08… S&P500 +2.8% two weeks later
11/28/07… S&P500 +1.2% two weeks later
06/27/07… S&P500 +2.8% two weeks later
05/02/07… S&P500 +1.2% two weeks later
04/05/07… S&P500 +2.8% two weeks later
03/20/07… S&P500 +1.9% two weeks later
10/12/06… S&P500 +1.9% two weeks later
10/04/06… S&P500 +1.2% two weeks later
07/19/06… S&P500 +1.5% two weeks later
06/01/06… S&P500 -2.3% two weeks later
04/18/06… S&P500 +0.4% two weeks later
01/03/06… S&P500 +0.7% two weeks later
11/02/05… S&P500 +1.4% two weeks later
05/18/05… S&P500 +1.6% two weeks later
02/04/05… S&P500 -0.1% two weeks later
01/31/05… S&P500 +2.1% two weeks later
11/04/04… S&P500 +1.9% two weeks later
05/25/04… S&P500 +1.6% two weeks later
05/11/04… S&P500 +1.6% two weeks later
02/06/04… S&P500 -0.2% two weeks later
12/29/03… S&P500 +1.1% two weeks later
10/01/03… S&P500 +2.8% two weeks later
08/28/03… S&P500 +1.6% two weeks later
07/02/03… S&P500 -1.2% two weeks later
04/22/03… S&P500 +2.5% two weeks later
04/17/03… S&P500 +4.1% two weeks later
Note that in 25 out of 30 cases, or 83% of the time, the S&P was trading higher two weeks later, significantly better than the 54% at-any-time odds for a higher S&P two weeks (ten trading days) later. In general, very positive NYSE TICK action typically leads to further price strength over the intermediate-term.
Short-term, fear is way down (CBOE equity put/call 10-day average hit a six-month low on Friday) and the market is terrifically overbought, indicating the potential for short-term weakness. Breadth settled better than 2:1 positive on the NASDAQ and better than 3:1 positive on the NYSE during each of the last three sessions. The lopsided action sent the NYSE McClellan Oscillator into overbought territory (>150) on two consecutive sessions as of New Years Eve, triggering a short-term sell. The NASDAQ McClellan also moved into overbought territory at Friday’s close, settling over +190 for only the thirteenth time in the last twenty years. Typically, this type of extreme action has led to a pullback over the next week. While the Cumulative TICK is pointing to the potential for further strength heading into January’s options expiration, it looks like we’ll see the market trade lower first…
Nasdaq McClellan Oscillator closes over +190
01/02/09 Mcc +207… Nasdaq ??? one week later
12/08/08 Mcc +228… Nasdaq -3.5% one week later
11/04/08 Mcc +224… Nasdaq -11.1% one week later
04/05/04 Mcc +196… Nasdaq -2.4% one week later
11/01/02 Mcc +196… Nasdaq -1.0% one week later
08/22/02 Mcc +194… Nasdaq -8.3% one week later
10/11/01 Mcc +205… Nasdaq -4.3% one week later
04/18/01 Mcc +233… Nasdaq -0.9% one week later
01/03/01 Mcc +197… Nasdaq -4.5% one week later
06/02/00 Mcc +224… Nasdaq +0.1% one week later
09/23/98 Mcc +238… Nasdaq -3.5% one week later
05/05/97 Mcc +214… Nasdaq -0.9% one week later
12/18/87 Mcc +210… Nasdaq -1.3% one week later
The S&P Oscillator closed at 5.25 Friday, high from a historical perspective but not at levels that necessarily indicate a persistent trend is unfolding. For that, we need to see a reading over 7.0. One of the useful features of the new site is the ‘search’ tab – look up ‘standard and poors oscillator’ to find my recent column on this indicator. All of my columns from 2008 are searchable, and we’re adding more by the day. We should have all of 2007 columns posted by next week.
New 52-week highs finally overtook new 52-week lows at the end of last week, but note that the New High-Low Index remains at a low 23% as of Friday’s close. Should the S&P hold above 929 at Monday’s close, this indicator will trigger an intermediate-term sell signal given that the SPX will be up over 5% from its two-week ago close and the High-Low Index will still be well below the 80% level. See my December 7th column for a recent discussion. The upshot is that conditions are likely to remain range-bound for the time being, similar to most of December, and that Friday’s push into new highs most likely won’t see follow-through (initially). Look back at all recent instances when the S&P closed above a previous swing high and you’ll notice the market usually turned and traded lower short-term. It’s doubtful this time will be any different.
From a longer-term perspective, I’m seeing some encouraging signs, suggesting a pullback this week could prove to be a buying opportunity looking out a few months. I’ll have more on this development in Monday’s commentary.
Overbought to Kick Off the New Year, Speculators MIA
By Rennie on Sunday, January 4th, 2009 at 5:04 pmInstitutional buyers surfaced in a big way Friday, lifting the S&P and Nasdaq over 3% in thin trading. TICKscore settled at +82, tying the highest recorded reading for all of last year. Cumulative TICK settled at a similarly impressive +181,000. That’s the highest Cumulative TICK reading we’ve seen in over a year, a positive sign from an intermediate-term perspective. The table below lists the last thirty instances in which the Cumulative TICK closed at its highest level of the past two months…
NYSE Cumulative TICK Hits a Two-Month High
01/02/09… S&P500 ??? two weeks later
10/13/08… S&P500 -15.4% two weeks later
07/29/08… S&P500 +2.1% two weeks later
07/16/08… S&P500 +3.1% two weeks later
04/16/08… S&P500 +1.5% two weeks later
03/18/08… S&P500 +2.8% two weeks later
11/28/07… S&P500 +1.2% two weeks later
06/27/07… S&P500 +2.8% two weeks later
05/02/07… S&P500 +1.2% two weeks later
04/05/07… S&P500 +2.8% two weeks later
03/20/07… S&P500 +1.9% two weeks later
10/12/06… S&P500 +1.9% two weeks later
10/04/06… S&P500 +1.2% two weeks later
07/19/06… S&P500 +1.5% two weeks later
06/01/06… S&P500 -2.3% two weeks later
04/18/06… S&P500 +0.4% two weeks later
01/03/06… S&P500 +0.7% two weeks later
11/02/05… S&P500 +1.4% two weeks later
05/18/05… S&P500 +1.6% two weeks later
02/04/05… S&P500 -0.1% two weeks later
01/31/05… S&P500 +2.1% two weeks later
11/04/04… S&P500 +1.9% two weeks later
05/25/04… S&P500 +1.6% two weeks later
05/11/04… S&P500 +1.6% two weeks later
02/06/04… S&P500 -0.2% two weeks later
12/29/03… S&P500 +1.1% two weeks later
10/01/03… S&P500 +2.8% two weeks later
08/28/03… S&P500 +1.6% two weeks later
07/02/03… S&P500 -1.2% two weeks later
04/22/03… S&P500 +2.5% two weeks later
04/17/03… S&P500 +4.1% two weeks later
Note that in 25 out of 30 cases, or 83% of the time, the S&P was trading higher two weeks later, significantly better than the 54% at-any-time odds for a higher S&P two weeks (ten trading days) later. In general, very positive NYSE TICK action typically leads to further price strength over the intermediate-term.
Short-term, fear is way down (CBOE equity put/call 10-day average hit a six-month low on Friday) and the market is terrifically overbought, indicating the potential for short-term weakness. Breadth settled better than 2:1 positive on the NASDAQ and better than 3:1 positive on the NYSE during each of the last three sessions. The lopsided action sent the NYSE McClellan Oscillator into overbought territory (>150) on two consecutive sessions as of New Years Eve, triggering a short-term sell. The NASDAQ McClellan also moved into overbought territory at Friday’s close, settling over +190 for only the thirteenth time in the last twenty years. Typically, this type of extreme action has led to a pullback over the next week. While the Cumulative TICK is pointing to the potential for further strength heading into January’s options expiration, it looks like we’ll see the market trade lower first…
Nasdaq McClellan Oscillator closes over +190
01/02/09 Mcc +207… Nasdaq ??? one week later
12/08/08 Mcc +228… Nasdaq -3.5% one week later
11/04/08 Mcc +224… Nasdaq -11.1% one week later
04/05/04 Mcc +196… Nasdaq -2.4% one week later
11/01/02 Mcc +196… Nasdaq -1.0% one week later
08/22/02 Mcc +194… Nasdaq -8.3% one week later
10/11/01 Mcc +205… Nasdaq -4.3% one week later
04/18/01 Mcc +233… Nasdaq -0.9% one week later
01/03/01 Mcc +197… Nasdaq -4.5% one week later
06/02/00 Mcc +224… Nasdaq +0.1% one week later
09/23/98 Mcc +238… Nasdaq -3.5% one week later
05/05/97 Mcc +214… Nasdaq -0.9% one week later
12/18/87 Mcc +210… Nasdaq -1.3% one week later
The S&P Oscillator closed at 5.25 Friday, high from a historical perspective but not at levels that necessarily indicate a persistent trend is unfolding. For that, we need to see a reading over 7.0. One of the useful features of the new site is the ‘search’ tab – look up ‘standard and poors oscillator’ to find my recent column on this indicator. All of my columns from 2008 are searchable, and we’re adding more by the day. We should have all of 2007 columns posted by next week.
New 52-week highs finally overtook new 52-week lows at the end of last week, but note that the New High-Low Index remains at a low 23% as of Friday’s close. Should the S&P hold above 929 at Monday’s close, this indicator will trigger an intermediate-term sell signal given that the SPX will be up over 5% from its two-week ago close and the High-Low Index will still be well below the 80% level. See my December 7th column for a recent discussion. The upshot is that conditions are likely to remain range-bound for the time being, similar to most of December, and that Friday’s push into new highs most likely won’t see follow-through (initially). Look back at all recent instances when the S&P closed above a previous swing high and you’ll notice the market usually turned and traded lower short-term. It’s doubtful this time will be any different.
From a longer-term perspective, I’m seeing some encouraging signs, suggesting a pullback this week could prove to be a buying opportunity looking out a few months. I’ll have more on this development in Monday’s commentary.