Implications of Friday’s Late-Session Comeback

Late-day comebacks often reflect an effort to mask underlying weakness. To the casual observer, it appears as if the market had a relatively uneventful session, when in reality nothing could be further from the truth. Institutional selling was very heavy intraday, leading to a -71 closing TICKscore and -103,000 Cumulative TICK reading. New 52-week lows expanded to over 800 on the NYSE, and breadth settled nearly 2: in favor of decliners. That last statistic drives home how weak a ‘rally’ it really was on Friday. It’s unusual to see anywhere close to 2:1 negative breadth (0.50 advance/decline ratio) on a day when the S&P500 settles higher. Historically, when the market has managed to rally on a day with a closing advance/decline ratio of .60 or lower, it’s breadth that’s the better tell, and the market will usually reverse course and trade lower the following session. Out of 28 occurrences over the past two decades, the S&P closed lower the following session 23 times. That 82% win rate is significantly above the 47% at-any-time odds for a lower S&P close one day later…

NYSE Adv/Dec Ratio <.60 on Up Day for S&P500
03/06/09 .58… S&P ??? next day
11/18/08 .58… s&P -6.1% next day
09/26/08 .50… S&P -8.8% next day
07/03/08 .53… S&P -0.8% next day
06/23/08 .51… S&P -0.3% next day
06/09/08 .55… S&P -0.2% next day
12/13/07 .51… S&P -1.4% next day
03/23/05 .28… S&P -0.1% next day
02/18/05 .58… S&P -1.5% next day
04/23/04 .53… S&P -0.5% next day
01/29/04 .59… S&P -0.3% next day
08/04/03 .56… S&P -1.8% next day
09/10/01 .58… S&P -4.9% next day
10/18/99 .57… S&P +0.6% next day
09/16/99 .44… S&P +1.3% next day
05/17/99 .54… S&P -0.5% next day
07/27/98 .46… S&P -1.5% next day
06/12/98 .59… S&P -2.0% next day
04/03/97 .58… S&P +1.0% next day
03/17/97 .51… S&P -0.8% next day
06/07/96 .37… S&P -0.2% next day
03/06/95 .54… S&P -0.7% next day
01/23/95 .59… S&P +0.0% next day
10/25/94 .57… S&P +0.2% next day
04/19/94 .50… S&P -0.1% next day
03/31/94 .49… S&P -1.5% next day
03/02/94 .56… S&P -0.4% next day
03/15/91 .55… S&P -0.4% next day
04/15/88 .58… S&P -0.2% next day

Friday also represented a ‘recovery day’ in the sense that the S&P recovered from a 1.5%+ deficit to finish with a modest gain. In recent years, this too has typically led to a lower S&P close within the next 1-2 days…

S&P Down 1.5%+ Intraday, Closes Up Less Than 1%
03/06/09? ???
02/12/09? Lower SPX close one session later
01/23/09? No lower close within two sessions
01/15/09? Lower SPX close two sessions later
12/12/08? Lower SPX close one session later
11/25/08? No lower close within two sessions
11/18/08? Lower SPX close one session later
09/26/08? Lower SPX close one session later
09/05/08? Lower SPX close two sessions later
07/01/08? Lower SPX close one session later
03/13/08? Lower SPX close one session later
08/16/07? No lower close within two sessions
08/10/07? Lower SPX close one session later
06/08/06? Lower SPX close one session later
05/12/04? Lower SPX close one session later
03/20/03? Lower SPX close two sessions later
02/25/03? Lower SPX close one session later
10/23/02? Lower SPX close one session later
08/09/02? Lower SPX close one session later
07/30/02? Lower SPX close two sessions later
07/11/02? Lower SPX close one session later
06/24/02? Lower SPX close one session later
10/05/01? Lower SPX close one session later
03/01/01? Lower SPX close one session later
04/27/00? Lower SPX close one session later
01/05/00? No lower close within two sessions
05/12/99? Lower SPX close two sessions later
09/21/98? No lower close within two sessions
06/07/96? Lower SPX close one session later
03/31/94? Lower SPX close one session later

There is one bright spot on the horizon, however. The 20-day moving average of advancing volume (expressed as a percentage of total volume) remains at a very low 38% as of Friday’s close. This statistic will trigger a buy signal at Monday’s close regardless of how the market finishes, and the historical track record is very strong over the past thirty signals spanning 20+ years. Details in Monday’s column.

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

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