Buyers Rush In At The Close, Producing the Third 90% Up Volume Session of the Month

Tuesday marked the sixth consecutive session that the Dow Industrials posted ‘higher highs’. Over the past decade, six higher highs has often coincided with a short-term topping period for the Dow. All occurrences of this price pattern since 1998 are noted in the table below. Note that out of 29 occurrences, 21 (72%) led to a lower Dow close two sessions later. That’s a pretty good record considering that in the same time frame, the random chance for a lower Dow close two days later is just under 50%.

Six Higher Highs for the Dow Industrials
03/17/09… Dow ??? two sessions later
07/23/08… Dow -2.3% two sessions later
05/21/07… Dow -0.1% two sessions later
04/27/07… Dow +0.1% two sessions later
12/20/06… Dow -1.0% two sessions later
11/20/06… Dow +0.1% two sessions later
03/15/06… Dow +0.6% two sessions later
02/22/06… Dow -0.7% two sessions later
11/25/05… Dow -0.4% two sessions later
05/23/05… Dow -0.6% two sessions later
04/26/05… Dow -0.8% two sessions later
12/16/04… Dow -0.4% two sessions later
04/01/04… Dow +1.8% two sessions later
01/21/04… Dow -0.5% two sessions later
01/05/04… Dow -0.1% two sessions later
11/03/03… Dow -0.4% two sessions later
08/14/03… Dow +1.1% two sessions later
03/20/03… Dow -0.9% two sessions later
02/14/02… Dow -2.6% two sessions later
01/20/01… Dow +0.6% two sessions later
11/08/01… Dow -0.4% two sessions later
08/08/00… Dow -0.6% two sessions later
04/26/00… Dow -1.9% two sessions later
02/30/99… Dow -0.8% two sessions later
10/11/99… Dow -3.9% two sessions later
07/06/99… Dow -0.1% two sessions later
04/12/99… Dow +0.7% two sessions later
11/05/98… Dow -0.2% two sessions later
04/17/98… Dow +0.2% two sessions later
03/20/98… Dow -0.0% two sessions later

Also noteworthy that in only two cases out of thirty was the Dow up 1% or more two sessions later, implying limited upside potential heading into Thursday’s close.

Breadth settled in positive territory for the sixth consecutive session, but I’d note volume was down sharply Tuesday. Big board volume hit its lowest level of the month as just under 1.5 billion shares traded hands. It’s generally not a short-term positive sign when volume drops off 20%+ on a 2:1+ positive breadth session.

New 52-week highs contracted while new 52-week lows expanded on both the NYSE and NASDAQ, a fairly unusual development given that the NDX posted a higher high, higher low and higher close. This hints at underlying weakness not evident on the surface, and usually leads to a lower Nasdaq close within the next few sessions…

New Highs Contract, New Lows Expand on Rally Day
03/17/09… ???
11/04/08… Lower NDX close one session later
06/04/08… Lower NDX close two sessions later
04/21/08… Lower NDX close one session later
04/10/08… Lower NDX close one session later
10/18/07… Lower NDX close one session later
09/24/07… No lower close within three sessions
04/17/07… Lower NDX close one session later
02/21/07… Lower NDX close three sessions later
11/08/06… Lower NDX close one session later
09/14/06… Lower NDX close three sessions later
05/08/06… Lower NDX close one session later
07/15/05… Lower NDX close one session later
05/24/05… Lower NDX close one session later
05/06/05… Lower NDX close two sessions later
02/08/05… Lower NDX close one session later
09/04/03… Lower NDX close one session later
07/30/02… Lower NDX close one session later
03/08/02… Lower NDX close one session later
06/07/01… Lower NDX close one session later
08/15/00… Lower NDX close one session later
07/17/00… Lower NDX close one session later
11/10/99… No lower close within three sessions
08/24/99… Lower NDX close three sessions later
01/07/99… Lower NDX close three sessions later
11/10/98… Lower NDX close two sessions later
07/13/98… Lower NDX close one session later
07/07/98… No lower close within three sessions
06/09/98… Lower NDX close one session later

Note that out of 28 occurrences since 1998, 25 led to a lower NDX close within the next three sessions. That 89% win rate is significantly above the 67% at-any-time odds for a lower NDX close (below the setup day) within three days.

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

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