Equal Weight S&P500 Underperforms, Follows SPX into New 52-week Lows

The positive divergence between the S&P500 and New 52-week Lows was nullified by midday Monday when the number of new lows exceeded the February 19th peak. This statistic closed at 627 Monday. TICKscore settled at -100, Cumulative TICK -163,000, reflecting a massively lopsided session with persistent institutional selling and no buying. Monday marked the fourth consecutive lower close, so it’s worth noting that another down day on Tuesday would trigger the ‘five down and a bounce’ setup recently discussed in my February 22nd column.

One short-term negative development was the underperformance of the Equal Weight S&P relative to the SPX. The last thirty instances in which the equal weighted version of the benchmark index underperformed the SPX by at least 0.7% are listed in the table below, along with the performance of the S&P over the next two sessions. Note that in 23 out of 30 cases, or 77% of the time, the S&P was trading at a lower level two sessions later. That?s significantly greater than the 50% at-any-time odds for a lower S&P close two days later…

SPX Outperforms Equal Weight S&P By >0.7%
03/02/09? S&P500 ??? two sessions later
01/29/09? S&P500 -2.3% two sessions later
01/20/09? S&P500 +2.8% two sessions later
01/12/09? S&P500 -3.2% two sessions later
12/22/08? S&P500 -0.7% two sessions later
11/18/08? S&P500 -12.4% two sessions later
11/10/08? S&P500 -7.3% two sessions later
10/23/08? S&P500 -6.5% two sessions later
10/02/08? S&P500 -5.2% two sessions later
09/22/08? S&P500 -1.8% two sessions later
07/24/08? S&P500 -1.5% two sessions later
03/17/08? S&P500 +1.7% two sessions later
10/03/05? S&P500 -2.5% two sessions later
03/25/03? S&P500 -0.7% two sessions later
12/04/02? S&P500 -0.6% two sessions later
11/08/02? S&P500 -1.3% two sessions later
11/07/02? S&P500 -2.9% two sessions later
11/05/02? S&P500 -1.4% two sessions later
10/16/02? S&P500 +2.8% two sessions later
10/09/02? S&P500 +7.5% two sessions later
10/01/02? S&P500 -3.4% two sessions later
07/31/02? S&P500 -5.2% two sessions later
07/26/02? S&P500 +5.9% two sessions later
07/17/02? S&P500 -6.4% two sessions later
07/02/02? S&P500 +4.3% two sessions later
06/12/02? S&P500 -1.3% two sessions later
05/08/02? S&P500 -3.1% two sessions later
09/26/01? S&P500 +3.4% two sessions later
09/17/01? S&P500 -2.2% two sessions later
09/10/01? S&P500 -5.5% two sessions later
03/27/01? S&P500 -2.9% two sessions later

With S&P futures up about 1% in overnight trading, here’s an interesting pattern to keep an eye out for… A higher open and higher close but a failure to take out Monday’s intraday high. Such a development coming immediately on the heels of an unfilled downside gap is usually indicative of a weak bounce, and the S&P has a better-than-average chance at posting a lower close within the next few sessions. There have been a total of 29 occurrences of this two-day price pattern since the inception of S&P futures, 25 of which led to a lower S&P close within the next three sessions. That 86% win rate is significantly above the 66% at-any-time odds in the same time frame…

Higher Open & Close, Lower Highs after Unfilled Downside Gap
12/02/08… Lower S&P close two sessions later
05/27/08… Lower S&P close five sessions later
12/18/07… Lower S&P close one sessions later
07/25/07… Lower S&P close one sessions later
02/28/07… Lower S&P close one sessions later
03/17/05… Lower S&P close one sessions later
08/09/04… Lower S&P close three sessions later
09/04/02… Lower S&P close one sessions later
03/21/02… Lower S&P close one sessions later
07/09/01… Lower S&P close one sessions later
03/13/01… Lower S&P close one sessions later
09/07/00… Lower S&P close one sessions later
05/04/00… Lower S&P close three sessions later
10/14/99… Lower S&P close one sessions later
08/11/97… Lower S&P close one sessions later
04/14/97… No lower close within three sessions
07/20/95… Lower S&P close one sessions later
06/27/94… Lower S&P close one sessions later
04/05/93… Lower S&P close one sessions later
02/10/93… Lower S&P close two sessions later
08/20/91… No lower close within three sessions
09/21/90… Lower S&P close one sessions later
11/14/88… Lower S&P close two sessions later
04/15/88… Lower S&P close two sessions later
10/20/87… No lower close within three sessions
06/14/85… Lower S&P close one sessions later
02/07/84… Lower S&P close one sessions later
10/26/82… Lower S&P close one sessions later
07/06/82… Lower S&P close one sessions later

For this to trigger Tuesday, March S&Ps would need to open and close above 705.50 and remain below 724.30 intraday.

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

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