New High-Low Index Slammed

Yesterday I mentioned that the New-High Low Index recently fell below 1%. This indicator is calculated by dividing new 52-week highs by the sum of new 52-week highs & lows. The raw data is then smoothed with a 10-day moving average. It’s the average that fell below 1% at the beginning of this week, which marks only the tenth time since our database began that we’ve seen a sub-1% reading. Looking over the previous nine occurrences, only two led to a substantial market rally over the next thirty trading days. This suggests that when selling pressure is this broad-based, the market has a difficult time gathering the momentum necessary to launch a sustainable intermediate-term rally…

New High-Low Index Falls Below 1%
08/29/66… S&P500 +0.5% thirty sessions later
10/11/66… S&P500 +7.1% thirty sessions later
08/01/69… S&P500 +1.5% thirty sessions later
05/05/70… S&P500 -3.1% thirty sessions later
07/10/74… S&P500 -8.1% thirty sessions later
09/04/74… S&P500 +2.4% thirty sessions later
12/13/74… S&P500 +13.4% thirty sessions later
03/19/80… S&P500 +1.1% thirty sessions later
10/28/87… S&P500 +0.1% thirty sessions later
03/02/09… S&P500 ??? thirty sessions later

Also noteworthy that in this entire 40+ year time frame, there’s only been one instance in which selling pressure was so widespread as to keep the New High-Low Index under 50% for nine months or more. That was 1974, when the index fell under 50% in April ’74 and didn’t rebound back over 50% until January ’75. I bring this up because we’re currently approaching the nine-month mark and the New High-Low Index remains on the mat, showing no signs of life (see long-term chart). Back in 1974, it was best to wait for the New High-Low Index to rally above the 50% level before considering the possibility of a sustainable intermediate-term bottom. That’s probably a good idea this time around as well.

On a short-term basis, it was not a positive sign to see the Bank Index underperform the market by such a wide margin Wednesday. The BKX bucked the trend of the S&P to close down 3%, triggering a three-day sell for the S&P. Historically, the S&P struggles over the next few sessions when it manages to close higher despite a solid down day for the BKX. The table below lists the last thirty instances in which the S&P500 closed higher on a day when the Philadelphia Bank Index lost more than 1.5%?

S&P Closes Higher Despite 1.5%+ Selloff for BKX
03/04/09? S&P500 ??? three sessions later
02/12/09? S&P500 -5.6% three sessions later
02/03/09? S&P500 +3.6% three sessions later
01/26/09? S&P500 +1.0% three sessions later
01/15/09? S&P500 -0.4% three sessions later
06/30/08? S&P500 -1.3% three sessions later
06/23/08? S&P500 -2.6% three sessions later
06/09/08? S&P500 -1.6% three sessions later
05/28/08? S&P500 -0.4% three sessions later
05/16/08? S&P500 -2.4% three sessions later
05/08/08? S&P500 +0.4% three sessions later
04/04/08? S&P500 -1.2% three sessions later
03/03/08? S&P500 -2.0% three sessions later
12/12/07? S&P500 -2.7% three sessions later
04/02/07? S&P500 +1.4% three sessions later
03/06/07? S&P500 +0.5% three sessions later
10/05/01? S&P500 +0.9% three sessions later
01/09/01? S&P500 +1.4% three sessions later
11/15/00? S&P500 -3.4% three sessions later
10/04/00? S&P500 -2.3% three sessions later
06/30/00? S&P500 +0.1% three sessions later
06/21/00? S&P500 -1.6% three sessions later
06/15/00? S&P500 -0.2% three sessions later
05/16/00? S&P500 -4.0% three sessions later
04/27/00? S&P500 -1.3% three sessions later
04/07/00? S&P500 -3.2% three sessions later
02/17/00? S&P500 -2.0% three sessions later
02/14/00? S&P500 -0.1% three sessions later
02/10/00? S&P500 -1.0% three sessions later
01/10/00? S&P500 -0.5% three sessions later
12/16/99? S&P500 +1.0% three sessions later

Note that in only nine cases out of thirty, or 30% of the time, was the S&P trading at a higher level three sessions later. That?s significantly worse than the 54% at-any-time odds for a higher S&P three sessions later. Along similar lines, Tuesday marked only the thirteenth time in the last thirty years that the S&P has managed to close higher on a 3%+ down day for General Electric. In most cases, the S&P struggled over the next few sessions?

GE Down 3%+, S&P Closes Higher
03/04/09? S&P500 ??? three sessions later
02/05/09? S&P500 -2.2% three sessions later
01/23/09? S&P500 +5.1% three sessions later
01/13/09? S&P500 -2.5% three sessions later
09/18/08? S&P500 -7.6% three sessions later
09/13/02? S&P500 -2.3% three sessions later
03/21/02? S&P500 -1.3% three sessions later
10/20/00? S&P500 -2.3% three sessions later
06/21/00? S&P500 -1.6% three sessions later
02/17/00? S&P500 -2.0% three sessions later
12/15/99? S&P500 +0.4% three sessions later
10/24/90? S&P500 -3.4% three sessions later
10/22/90? S&P500 -1.5% three sessions later

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

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