Shift in Sentiment as the Market Trades Lower

Major market averages settled lower Thursday, although selling pressure was mild. TICKscore settled at -22, Cumulative TICK -6,400. Breadth was virtually flat, and NYSE volume hit its lowest level of the past week. One positive sign from a short-term perspective is the fact that the 10-day moving average of the CBOE Equity Put/Call Ratio is rolling over, suggesting fear is giving way to greed (at least temporarily). Thursday marked the second day in a row that the 10-day average has declined. In recent years, it’s been a short-term positive sign for the market when the S&P closes lower two days in a row and the put/call ratio moving average also declines both days. The last thirty occurrences are listed in the table below…

S&P Down Two, Equity P/C 10day Avg Down Two
02/26/09… ???
12/18/08… Higher S&P close one session later
11/17/08… Higher S&P close one session later
10/22/08… Higher S&P close one session later
09/24/08… Higher S&P close one session later
09/23/08… Higher S&P close two sessions later
08/13/08… Higher S&P close one session later
08/04/08… Higher S&P close one session later
04/30/08… Higher S&P close one session later
04/22/08… Higher S&P close one session later
12/17/07… Higher S&P close one session later
10/03/07… Higher S&P close one session later
01/03/07… Higher S&P close one session later
09/07/06… Higher S&P close one session later
07/27/06… Higher S&P close one session later
06/23/06… Higher S&P close one session later
06/20/06… Higher S&P close one session later
05/23/06… Higher S&P close one session later
03/31/06… Higher S&P close one session later
02/21/06… Higher S&P close one session later
12/16/05… No higher close in the next 1-2 days
10/26/05… Higher S&P close two sessions later
08/08/05… Higher S&P close one session later
08/05/05… Higher S&P close two sessions later
05/13/05… Higher S&P close one session later
11/10/04… Higher S&P close one session later
11/09/04… Higher S&P close two sessions later
10/25/04… Higher S&P close one session later
07/19/04… Higher S&P close one session later
06/25/04… Higher S&P close two sessions later
03/22/04… No higher close in the next 1-2 days

Note that in 28 out of 30 cases, or 93% of the time, the S&P posted a subsequently higher close within the next two sessions, well ahead of the 67% at-any-time odds in the same time frame. Similar to my February 24th study on a rising Equity Put/Call Ratio, this is a recent (but highly accurate) phenomenon only. Prior to 2004, the record was more in line with random.

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

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