Why a Pullback on Thursday Could be a Short-term Buy, Plus a Look Ahead to the End of January
By
Rennie on Wednesday, January 21st, 2009 at 11:20 pm
Stock indexes closed sharply higher Wednesday in a surprisingly strong turnaround. Institutional participation was light until the final hour. TICKscore settled at +24, Cumulative TICK +26,000. Breadth settled nearly 4:1 positive on the NYSE and nearly 3:1 positive on the NASDAQ. That suggests limited upside potential on Thursday – see my December 16th column for a recent discussion on NASDAQ 3:1 positive breadth sessions.
Similar to January 15th, the NDX is once again trading above its three-week ago close while the S&P remains more than 1% below its three-week ago level. When the NASDAQ is the relative outperformer, it’s usually a short-term positive sign for the S&P. As I noted in my January 15th column, when this setup was last triggered, the S&P has posted a subsequently higher close within the next few sessions in 28 out of the last 30 occurrences. That suggests the potential for a close above today’s settlement by Monday at the latest.
Another short-term bullish setup was also triggered Wednesday. Historically, when the S&P500 hits a one-month low in intraday trading and new 52-week lows decline on both exchanges that day, it’s typically a sign of waning downside momentum. The S&P has a solid of track record of posting a higher close 2-3 trading days later, particularly in recent years. The last thirty occurrences are listed in the table below. Note that in only two cases did the S&P not post a higher close 2-3 sessions later. That 93% win rate handily beats the 65% at-any-time odds for a higher S&P 2-3 sessions later…
S&P500 Hits One-Month Low on a Drop in New 52-week Lows
01/21/09… S&P500 ???
11/21/08… S&P500 +7.2% two sessions later
10/09/08… S&P500 +10.3% two sessions later
10/07/08… S&P500 -9.7% three sessions later
09/17/08… S&P500 +8.5% two sessions later
07/14/08… S&P500 +1.4% two sessions later
06/19/08… S&P500 -2.1% three sessions later
06/12/08… S&P500 +1.5% two sessions later
06/03/08… S&P500 +1.9% two sessions later
05/27/08… S&P500 +0.9% two sessions later
01/23/08… S&P500 +1.2% three sessions later
01/07/08… S&P500 +0.3% three sessions later
11/21/07… S&P500 +0.8% three sessions later
11/09/07… S&P500 +1.9% two sessions later
07/31/07… S&P500 +1.2% two sessions later
07/27/07… S&P500 +0.5% three sessions later
06/08/07… S&P500 +0.5% three sessions later
06/14/06… S&P500 +1.8% two sessions later
05/18/06… S&P500 +0.0% two sessions later
01/03/06… S&P500 +0.4% two sessions later
08/30/05… S&P500 +1.1% two sessions later
08/24/05… S&P500 +0.2% three sessions later
04/18/05… S&P500 +1.2% three sessions later
08/13/04… S&P500 +1.6% two sessions later
07/23/04… S&P500 +0.8% two sessions later
07/15/04… S&P500 +0.2% three sessions later
09/29/03… S&P500 +1.2% two sessions later
08/05/03… S&P500 +0.9% two sessions later
12/31/02… S&P500 +3.3% two sessions later
10/10/02… S&P500 +4.7% two sessions later
10/08/02… S&P500 +0.7% two sessions later
At this point, it looks as though the Equal Weight sell signal from Tuesday will be proved wrong. A shallow pullback on Thursday will most likely set the stage for another push higher over the near-term. But with the New High-Low Index falling back under 10% today, the odds of a sustained uptrend are questionable. A gradual push higher heading into the end of the month could easily trigger another intermediate-term sell signal similar to the one triggered back on January 6th, and the market’s fighting a downward sloping Cumulative TICK moving average. That slope could flatten out and rise heading into the end of the month depending on market action, but it’s likely to turn sharply lower right around the end of the month. That’s when all of the extremely positive TICK action from the last days of December and first days of January will begin falling off the 20-day average.
Why a Pullback on Thursday Could be a Short-term Buy, Plus a Look Ahead to the End of January
By Rennie on Wednesday, January 21st, 2009 at 11:20 pmStock indexes closed sharply higher Wednesday in a surprisingly strong turnaround. Institutional participation was light until the final hour. TICKscore settled at +24, Cumulative TICK +26,000. Breadth settled nearly 4:1 positive on the NYSE and nearly 3:1 positive on the NASDAQ. That suggests limited upside potential on Thursday – see my December 16th column for a recent discussion on NASDAQ 3:1 positive breadth sessions.
Similar to January 15th, the NDX is once again trading above its three-week ago close while the S&P remains more than 1% below its three-week ago level. When the NASDAQ is the relative outperformer, it’s usually a short-term positive sign for the S&P. As I noted in my January 15th column, when this setup was last triggered, the S&P has posted a subsequently higher close within the next few sessions in 28 out of the last 30 occurrences. That suggests the potential for a close above today’s settlement by Monday at the latest.
Another short-term bullish setup was also triggered Wednesday. Historically, when the S&P500 hits a one-month low in intraday trading and new 52-week lows decline on both exchanges that day, it’s typically a sign of waning downside momentum. The S&P has a solid of track record of posting a higher close 2-3 trading days later, particularly in recent years. The last thirty occurrences are listed in the table below. Note that in only two cases did the S&P not post a higher close 2-3 sessions later. That 93% win rate handily beats the 65% at-any-time odds for a higher S&P 2-3 sessions later…
S&P500 Hits One-Month Low on a Drop in New 52-week Lows
01/21/09… S&P500 ???
11/21/08… S&P500 +7.2% two sessions later
10/09/08… S&P500 +10.3% two sessions later
10/07/08… S&P500 -9.7% three sessions later
09/17/08… S&P500 +8.5% two sessions later
07/14/08… S&P500 +1.4% two sessions later
06/19/08… S&P500 -2.1% three sessions later
06/12/08… S&P500 +1.5% two sessions later
06/03/08… S&P500 +1.9% two sessions later
05/27/08… S&P500 +0.9% two sessions later
01/23/08… S&P500 +1.2% three sessions later
01/07/08… S&P500 +0.3% three sessions later
11/21/07… S&P500 +0.8% three sessions later
11/09/07… S&P500 +1.9% two sessions later
07/31/07… S&P500 +1.2% two sessions later
07/27/07… S&P500 +0.5% three sessions later
06/08/07… S&P500 +0.5% three sessions later
06/14/06… S&P500 +1.8% two sessions later
05/18/06… S&P500 +0.0% two sessions later
01/03/06… S&P500 +0.4% two sessions later
08/30/05… S&P500 +1.1% two sessions later
08/24/05… S&P500 +0.2% three sessions later
04/18/05… S&P500 +1.2% three sessions later
08/13/04… S&P500 +1.6% two sessions later
07/23/04… S&P500 +0.8% two sessions later
07/15/04… S&P500 +0.2% three sessions later
09/29/03… S&P500 +1.2% two sessions later
08/05/03… S&P500 +0.9% two sessions later
12/31/02… S&P500 +3.3% two sessions later
10/10/02… S&P500 +4.7% two sessions later
10/08/02… S&P500 +0.7% two sessions later
At this point, it looks as though the Equal Weight sell signal from Tuesday will be proved wrong. A shallow pullback on Thursday will most likely set the stage for another push higher over the near-term. But with the New High-Low Index falling back under 10% today, the odds of a sustained uptrend are questionable. A gradual push higher heading into the end of the month could easily trigger another intermediate-term sell signal similar to the one triggered back on January 6th, and the market’s fighting a downward sloping Cumulative TICK moving average. That slope could flatten out and rise heading into the end of the month depending on market action, but it’s likely to turn sharply lower right around the end of the month. That’s when all of the extremely positive TICK action from the last days of December and first days of January will begin falling off the 20-day average.