Friday’s Narrow Range Day Provides Clues for the Short-term

The S&P500 held to a tight 16-point range Friday, the smallest range day in over three weeks. As noted in Friday’s intraday update, it’s generally a short-term negative sign when an NR10 bar appears after a short-term rally. In the table below I’ve listed each of the last thirty instances in which the S&P posted its narrowest range day of the past ten sessions (NR10) immediately following three consecutive higher closes (as was the case Friday). Note that in 29 out of 30 cases, or 97% of the time, the S&P posted a subsequently lower close within the next three days…

SPX NR10 Bar Following Three Up Days
03/13/09…
11/28/08… Lower SPX close one session later
05/30/08… Lower SPX close one session later
04/28/08… Lower SPX close one session later
04/08/08… Lower SPX close one session later
03/26/08… Lower SPX close one session later
12/26/07… Lower SPX close one session later
12/03/07… Lower SPX close one session later
09/14/07… Lower SPX close one session later
07/09/07… Lower SPX close one session later
06/18/07… Lower SPX close two sessions later
05/07/07… Lower SPX close one session later
04/09/07… Lower SPX close two sessions later
03/22/07… Lower SPX close three sessions later
02/02/07… Lower SPX close one session later
01/16/07… Lower SPX close one session later
10/24/06… Lower SPX close three sessions later
09/28/06… Lower SPX close one session later
08/21/06… Lower SPX close two sessions later
03/17/06… Lower SPX close one session later
02/17/06… Lower SPX close one session later
11/25/05… Lower SPX close one session later
09/30/05… Lower SPX close one session later
07/13/05… Lower SPX close three sessions later
05/19/05… Lower SPX close one session later
12/23/04… Lower SPX close one session later
11/08/04… Lower SPX close one session later
11/01/04… No lower close within three sessions
09/14/04… Lower SPX close one session later
07/30/04… Lower SPX close two sessions later
05/28/04… Lower SPX close three sessions later

Noteworthy that the VXO settled with a solid gain Friday despite the S&P’s positive finish. That’s also a generally negative indication for the short-term. When the volatility index increases on a day when it ostensibly should fall, it’s a short-term red flag for stocks. The table below lists each of the last thirty instances in which the VXO closed up 5% or
more on a day when the S&P settled higher. Note that in 25 out of 30 cases, or 83% of the time, the S&P posted a subsequently lower close within the next two sessions…

VXO +5% or more, S&P Closes Higher
03/13/09… S&P500 ???
09/26/08… S&P500 -8.8% one session later
09/12/08… S&P500 -4.7% one session later
08/10/07… S&P500 -0.1% one session later
07/05/07… S&P500 +0.4% two sessions later
09/27/06… S&P500 -0.1% two sessions later
11/23/05… S&P500 -0.6% two sessions later
09/01/05… S&P500 -0.3% one session later
12/20/04… S&P500 +1.3% two sessions later
11/12/04… S&P500 -0.0% one session later
10/29/04… S&P500 +0.0% two sessions later
10/11/04… S&P500 -0.2% one session later
06/01/04… S&P500 -0.4% two sessions later
12/30/03… S&P500 -0.1% two sessions later
12/18/03… S&P500 -0.1% one session later
11/27/02… S&P500 -0.3% one session later
03/24/00… S&P500 -0.2% one session later
03/23/00… S&P500 -0.2% two sessions later
12/30/99… S&P500 -0.6% two sessions later
05/12/99… S&P500 -1.9% two sessions later
07/13/98… S&P500 +0.8% two sessions later
03/20/98… S&P500 -0.3% one session later
02/17/98… S&P500 +0.5% two sessions later
05/27/97… S&P500 -0.3% one session later
05/14/97… S&P500 -0.8% two sessions later
05/05/97… S&P500 -0.3% one session later
03/17/97… S&P500 -0.8% one session later
11/25/96… S&P500 -0.1% one session later
11/20/96… S&P500 -0.2% one session later
11/15/96… S&P500 -0.1% one session later
09/03/96… S&P500 -0.8% two sessions later

The S&P did post higher highs on Friday following Thursday’s 90%+ up volume session, so we should keep an eye on Friday’s intraday high at 758.29. A break of that level during Monday’s session would suggest we’ll see a close above 758 on Monday – see last Wednesday’s column for a recent discussion of this pattern.

From an intermediate-term perspective, I’d note that any close above SPX 736 on Monday will trigger a sell signal. This is based on the fact that the S&P will be up 5%+ over a two-week period and the New High-Low Index will be well south of the 80% threshold. As discussed in my January 6th column, the market typically has a difficult time building on intermediate-term rallies when new 52-week highs are not convincingly above new 52-week lows. In 21 out of the last 30 cases, or 70% of the time, the S&P was trading at a lower level two weeks later, significantly greater than the 47% at-any-time odds of a lower S&P two weeks later. And I’d add that in only one case out of thirty was the S&P up more than 2.5% two weeks later.

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

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