Institutional Selling Persists, Nasdaq Shrugs It Off

TICKscore closed at -53 Friday, sending the Cumulative TICKscore down to the January low. Cumulative TICK closed at -94,000, keeping the 20-day moving average trending lower. Volume was the heaviest of the year on the NYSE, with over 2.1 billion shares trading hands. That helped send the Nasdaq/NYSE Volume Ratio down to a low 1.21, a positive sign from a short-term perspective as it indicates a resurgence of institutional participation relative to speculative participation. That should help kick start a short-term rally.

We saw a number of short-term bullish setups triggered at Friday’s close. S&P futures closed lower for a fifth consecutive session, a pattern that has had a solid track record at calling for a higher S&P close within the next 1-2 sessions. The last thirty times that the front-month contract closed lower five consecutive days are listed in the
table below. Note that in 28 out of 30 cases, or 93% of the time, the S&Ps posted a higher close (above the setup day’s close) within the next two sessions. That’s significantly better than the 65% at-any-time odds for a higher close within two days…

S&P Futures Settle Lower Five Days in a Row
02/20/09… ???
12/23/08… Higher close one session later
10/08/08… Higher close three sessions later
01/22/08… Higher close one session later
02/27/07… Higher close one session later
06/09/06… No higher close within two sessions
01/05/05… Higher close one session later
02/24/04… Higher close one session later
01/22/03… Higher close one session later
12/05/02… Higher close one session later
04/05/02… Higher close one session later
02/07/02… Higher close one session later
09/21/01… Higher close one session later
06/14/01… Higher close one session later
11/13/00… Higher close one session later
10/12/00… Higher close one session later
05/23/00… Higher close one session later
04/14/00… Higher close one session later
09/24/99… Higher close one session later
07/23/99… Higher close two sessions later
04/19/99… Higher close one session later
07/24/98… Higher close one session later
02/29/96… Higher close one session later
02/20/96… Higher close one session later
09/07/94… Higher close one session later
05/09/94… Higher close one session later
04/18/94… Higher close one session later
07/06/93… Higher close one session later
06/08/93… Higher close one session later
04/23/93… Higher close two sessions later
10/07/92… Higher close one session later

The 2-day RSI for the Dow Industrials and OEX slipped below 2.0 on Friday, triggering short-term buy setups similar to the SPX setup discussed Thursday evening.

Friday’s action on the NASDAQ was also encouraging from a short-term perspective. Despite decliners outnumbering advancers by over a 2:1 margin, the NDX still managed to close higher on strength in large cap issues. Since 1990, there have only been sixteen instances in which the Nasdaq breadth closed 2:1 negative and the NDX settled down 0.5% or less (or closed higher). Note that downside potential was typically limited over the next few days, and the NDX was usually trading higher three sessions later…

Nasdaq Breadth 2:1 Negative & NDX Down <0.5%
02/20/09… NDX ???
10/23/08… NDX +4.7% three sessions later
10/08/08… NDX +7.4% three sessions later
05/23/08… NDX +3.1% three sessions later
02/28/08… NDX -2.8% three sessions later
01/05/07… NDX +1.7% three sessions later
06/13/06… NDX +3.0% three sessions later
02/07/06… NDX +0.7% three sessions later
11/15/05… NDX +2.2% three sessions later
10/11/05… NDX +0.3% three sessions later
08/26/05… NDX +1.5% three sessions later
08/05/05… NDX -1.0% three sessions later
03/09/04… NDX -0.4% three sessions later
10/09/02… NDX +11.6% three sessions later
11/09/00… NDX -0.6% three sessions later
09/21/93… NDX +3.4% three sessions later
10/05/92… NDX +1.5% three sessions later

When the S&P500 closes down 1%+, the Nasdaq100 (NDX) typically suffers a similarly large loss given the large number of high beta stocks that comprise the index. But when the NDX manages to hold its own in the face of a solid down day for the S&P, as was the case on Friday, it suggests limited selling pressure and/or a rotational environment. Typically, the market is trading higher three sessions later. Listed below is every instance since 1990 in which the NDX settled down less than 0.5% (or managed a gain) on a day when the S&P fell over 1%. Note that in 25 out of 29 cases, or 86% of the time, the S&P closed at a higher level three sessions later…

S&P500 Drops 1%+, Nasdaq Down Less than 0.5%
02/20/09… S&P500 ??? three days later
10/29/08… S&P500 +3.9% three days later
10/10/08… S&P500 +1.0% three days later
10/08/08… S&P500 +1.9% three days later
08/12/08… S&P500 +0.7% three days later
07/31/08… S&P500 +1.4% three days later
07/15/08… S&P500 +3.8% three days later
05/23/08… S&P500 +1.6% three days later
06/13/06… S&P500 +2.3% three days later
05/12/05… S&P500 +1.2% three days later
03/09/05… S&P500 -0.0% three days later
04/16/03… S&P500 +3.6% three days later
01/22/03… S&P500 -3.5% three days later (*)
10/09/02… S&P500 +8.3% three days later
09/24/02… S&P500 +1.0% three days later
04/29/02… S&P500 +1.8% three days later
03/06/00… S&P500 +0.8% three days later
02/16/00… S&P500 -2.6% three days later (*)
05/27/99… S&P500 +1.1% three days later
01/14/99… S&P500 +3.7% three days later
07/09/97… S&P500 +1.2% three days later
03/13/97… S&P500 +0.0% three days later
04/10/96… S&P500 +1.4% three days later
02/20/96… S&P500 +2.9% three days later
01/10/96… S&P500 +0.2% three days later
06/24/94… S&P500 +1.1% three days later
04/01/91… S&P500 +2.3% three days later
01/09/91… S&P500 +0.3% three days later
01/02/91… S&P500 -3.4% three days later (*)
07/05/90… S&P500 +0.2% three days later

Whether a short-term rally sticks beyond the next few days is something we’ll examine Monday.

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

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