S&P Futures Close Down a Fifth Consecutive Session on the Heels of An Unfilled Downside Gap

S&P futures underperformed the cash index significantly Tuesday, due to the combination of a post-cash close rally on Monday and a post-close selloff today. The combination led to the S&P futures settling down over 2%, a sizable selloff on the heels of Monday’s unfilled downside gap. Historically, a 1%+ selloff immediately following a downside gap has usually led to a bit more follow-through over the short-term, although it should be noted this is a relatively rare phenomenon. Since inception of the S&P contract, there have only been 22 occurrences of a 1%+ drop the day after a downside gap. In the last 19 cases, the S&Ps proceeded to post a subsequently lower close, either immediately or after a short-term bounce…

S&P Futures -1% following Unfilled Downside Gap
03/03/09… ???
10/07/08… Lower S&P close one session later
05/21/08… Lower S&P close two sessions later
11/18/03… Lower S&P close two sessions later
01/21/03… Lower S&P close one session later
09/24/02… Lower S&P close four sessions later
07/22/02… Lower S&P close one session later
03/12/01… Lower S&P close two sessions later
02/20/01… Lower S&P close one session later
09/15/99… Lower S&P close four sessions later
07/30/99… Lower S&P close two sessions later
05/06/98… Lower S&P close one session later
10/24/97… Lower S&P close one session later
12/12/96… Lower S&P close two sessions later
05/09/94… Lower S&P close two sessions later
03/25/94… Lower S&P close two sessions later
10/10/90… Lower S&P close one session later
08/22/90… Lower S&P close one session later
03/25/88… Lower S&P close five sessions later
11/30/87… Lower S&P close one session later
09/12/86… No lower S&P close within five sessions
07/15/86… No lower S&P close within five sessions
01/24/83… No lower S&P close within five sessions

Today’s lower close made the fifth consecutive session that S&P futures settled lower, a pattern that has had a solid track record at calling for a higher S&P close within the next 1-2 sessions (although recent performance has been well below average). The last thirty times that the front-month contract closed lower five consecutive days are listed in the table below. Note that in 27 out of 30 cases, or 90% of the time, the S&Ps posted a higher close (above the setup day?s close) within the next two sessions…

S&P Futures Settle Lower Five Days in a Row
03/03/09? ???
02/20/09? No higher close within two sessions
12/23/08? Higher close one session later
10/08/08? No higher close within two sessions
01/22/08? Higher close one session later
02/27/07? Higher close one session later
06/09/06? No higher close within two sessions
01/05/05? Higher close one session later
02/24/04? Higher close one session later
01/22/03? Higher close one session later
12/05/02? Higher close one session later
04/05/02? Higher close one session later
02/07/02? Higher close one session later
09/21/01? Higher close one session later
06/14/01? Higher close one session later
11/13/00? Higher close one session later
10/12/00? Higher close one session later
05/23/00? Higher close one session later
04/14/00? Higher close one session later
09/24/99? Higher close one session later
07/23/99? Higher close two sessions later
04/19/99? Higher close one session later
07/24/98? Higher close one session later
02/29/96? Higher close one session later
02/20/96? Higher close one session later
09/07/94? Higher close one session later
05/09/94? Higher close one session later
04/18/94? Higher close one session later
07/06/93? Higher close one session later
06/08/93? Higher close one session later
04/23/93? Higher close two sessions later

Interesting to note that the 5-day RSI for the Dow Industrials closed below 15 for two consecutive days, a pattern that over the past two decades has been a good indication that selling pressure is most likely at or very near an exhaustion point for the near-term. Historically, the Dow has a solid track record of staging a short-term rally off of this setup, with 21 out of the past 24 signals leading to a higher Dow close by the time the RSI rallied out of technically oversold territory. In only one case did the Dow lose any substantial ground (more than 0.5%), although it should be noted that prior to 1987 this setup did not perform nearly as well.

03/03/09… Dow ??? when RSI back over 15
02/23/09… Dow +3.3% when RSI back over 15
10/09/08… Dow +9.4% when RSI back over 15
06/27/08… Dow +0.0% when RSI back over 15
03/05/07… Dow +1.3% when RSI back over 15
06/27/05… Dow +1.1% when RSI back over 15
04/18/05… Dow +0.6% when RSI back over 15
03/23/05… Dow +0.3% when RSI back over 15
10/25/04… Dow +1.4% when RSI back over 15
03/11/04… Dow +1.1% when RSI back over 15
07/22/02… Dow +5.2% when RSI back over 15
09/18/01… Dow -3.4% when RSI back over 15 (*)
09/19/00… Dow -0.2% when RSI back over 15
09/29/99… Dow +1.2% when RSI back over 15
09/24/99… Dow +0.2% when RSI back over 15
08/31/98… Dow +3.8% when RSI back over 15
11/23/94… Dow +0.9% when RSI back over 15
03/30/94… Dow +1.3% when RSI back over 15
08/24/92… Dow +0.6% when RSI back over 15
06/18/92… Dow +0.3% when RSI back over 15
01/08/91… Dow -0.4% when RSI back over 15
08/23/90… Dow +2.0% when RSI back over 15
08/06/90… Dow +0.7% when RSI back over 15
11/14/88… Dow +0.6% when RSI back over 15
10/19/87… Dow +5.9% when RSI back over 15

In general I’d expect choppy conditions over the short-term, with the potential for a close both above and below today’s settlement before the end of the week. But from a longer-term perspective, the scope of the recent selloff is nearly off the charts, with the S&P500 quietly sliding 20% in just the last fifteen trading days. The persistency of the decline has kept new 52-week highs in the low single digits while new 52-week lows number in the hundreds, sending the New High-Low Index plunging below 1% the last two days. The last time we saw a sub-1% reading was in the aftermath of the October ’87 crash. I’ll have more on the intermediate-term implications of this in tomorrow’s column.

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

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