S&P Futures Post Six Lower Lows, Suggests Selling Pressure Nearing a Short-term Exhaustion Point

The Dow posted a third consecutive down day during options expiration week, which from a seasonal perspective suggests we’ll see a close below today’s settlement by Tuesday of next week (see last night’s column for details). But rather than play for the lower close, I’d treat any further weakness over the near-term as a buying opportunity.

We saw a couple of solid buy signals triggered Wednesday, as S&P futures posted a sixth consecutive session of ‘lower lows’. Historically, this has been a good indication that a short-term bottom is nearby. Since 1986, we’ve seen this oversold price pattern a total of thirty times, all of which are noted in the table below along with the S&P’s performance over the next two sessions…

Six Consecutive Lower Lows for S&P Futures
01/14/09… S&P futures ??? two sessions later
10/09/08… S&P futures +11.4% two sessions later
06/25/07… S&P futures +0.4% two sessions later
11/03/06… S&P futures +1.5% two sessions later
05/24/06… S&P futures +1.7% two sessions later
01/22/03… S&P futures -2.0% two sessions later
12/09/02… S&P futures +1.4% two sessions later
10/10/02… S&P futures +4.9% two sessions later
09/24/02… S&P futures +4.1% two sessions later
07/24/02… S&P futures +1.2% two sessions later
04/29/02… S&P futures +2.2% two sessions later
12/14/01… S&P futures +1.7% two sessions later
08/10/01… S&P futures +0.1% two sessions later
07/26/99… S&P futures +1.0% two sessions later
07/27/98… S&P futures -2.1% two sessions later
04/03/97… S&P futures +1.8% two sessions later
10/29/96… S&P futures +0.5% two sessions later
03/01/96… S&P futures +1.6% two sessions later
10/25/94… S&P futures +1.0% two sessions later
03/31/94… S&P futures +0.4% two sessions later
10/25/93… S&P futures +0.3% two sessions later
01/07/93… S&P futures +0.2% two sessions later
04/02/92… S&P futures +1.6% two sessions later
01/09/91… S&P futures +1.1% two sessions later
09/18/90… S&P futures -2.2% two sessions later
04/24/90… S&P futures +0.9% two sessions later
06/16/89… S&P futures -0.1% two sessions later
11/20/87… S&P futures +1.8% two sessions later
10/12/87… S&P futures -2.1% two sessions later
09/02/87… S&P futures -2.3% two sessions later
09/12/86… S&P futures +0.5% two sessions later

Note that in 24 out of 30 instances, or 80% of the time, the S&P closed at a higher level two sessions later. That’s significantly greater than the 53% at-any-time odds for a higher S&P close two sessions later.

Additionally, the CBOE equity put/call ratio closed near the 1.0 level for the third day in a row Wednesday as equity put volume nearly matched equity call volume. That’s only the eighth time in the last decade that we’ve seen three consecutive equity put/call ratios in excess of .90. In most cases, the uptick in fear led to a counter-trend rally over the next couple of sessions…

CBOE Equity Put/Call Ratio >=.90 Three Days
01/14/09… S&P500 ??? two sessions later
11/20/08… S&P500 +13.2% two sessions later
11/12/08… S&P500 +2.5% two sessions later
09/17/08… S&P500 +8.5% two sessions later
03/10/08… S&P500 +2.8% two sessions later
08/16/07… S&P500 +2.4% two sessions later
08/29/03… S&P500 +1.8% two sessions later
09/18/02… S&P500 -2.8% two sessions later

The 2-day RSI for the Dow Industrials closed under 2.0 Wednesday, also suggesting the potential for a bounce over the short-term. The table below lists the last thirty instances in which the Dow’s 2-day RSI closed under 2.0, along with the performance of the Dow by the time the 2-day RSI rose back over 2.0. Note that in 25 out of 30 cases, or 83% of the time, the Dow was trading at a higher level when the RSI rebounded, invariably within 2-3 days of the signal…

Dow 2-Day RSI Closes Under 2.0
01/14/09… Dow ??? when 2-day RSI >2
10/08/08… Dow +1.4% when 2-day RSI >2 (three sessions)
06/26/08… Dow -0.9% when 2-day RSI >2 (two sessions)
03/10/08… Dow +3.6% when 2-day RSI >2 (one session)
10/19/07… Dow +0.3% when 2-day RSI >2 (one session)
06/07/07… Dow +1.2% when 2-day RSI >2 (one session)
02/27/07… Dow +0.4% when 2-day RSI >2 (one session)
11/03/06… Dow +1.0% when 2-day RSI >2 (one session)
06/13/06… Dow +1.0% when 2-day RSI >2 (one session)
06/24/05… Dow +1.1% when 2-day RSI >2 (two sessions)
03/22/05… Dow +0.2% when 2-day RSI >2 (three sessions)
01/05/05… Dow +0.2% when 2-day RSI >2 (one session)
10/25/04… Dow +1.4% when 2-day RSI >2 (one session)
05/10/04… Dow +0.3% when 2-day RSI >2 (one session)
03/10/04… Dow -0.5% when 2-day RSI >2 (two sessions)
01/22/03… Dow +0.6% when 2-day RSI >2 (one session)
09/03/02… Dow +1.4% when 2-day RSI >2 (one session)
07/22/02… Dow +5.3% when 2-day RSI >2 (two sessions)
07/16/02… Dow +0.8% when 2-day RSI >2 (one session)
04/29/02… Dow +1.3% when 2-day RSI >2 (one session)
01/14/02… Dow +0.3% when 2-day RSI >2 (one session)
09/17/01… Dow -3.4% when 2-day RSI >2 (five sessions)
10/11/00… Dow -2.1% when 2-day RSI >2 (two sessions)
09/18/00… Dow -0.4% when 2-day RSI >2 (three sessions)
01/28/00… Dow +1.9% when 2-day RSI >2 (one session)
01/24/00… DOw +0.2% when 2-day RSI >2 (one session)
09/24/99… Dow +0.2% when 2-day RSI >2 (one session)
09/16/99… Dow +0.6% when 2-day RSI >2 (one session)
07/26/99… Dow +1.1% when 2-day RSI >2 (one session)
05/25/99… Dow +1.6% when 2-day RSI >2 (one session)
08/31/98… Dow +3.8% when 2-day RSI >2 (one session)

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

 Print This Post