Stocks Recover from a Morning Selloff to Finish Higher, S&P Futures Close Monday’s Gap

Stock indexes recovered from a morning selloff to finish with solid gains Wednesday, leaving the market in a vulnerable position short-term. I?ve mentioned a number of times in recent months that these ?down in the morning/up in the afternoon? type of sessions have short-term negative implications. Previously I’ve noted that when the Dow Industrials manages to erase a 100-point intraday deficit and close up over 100 points, it’s generally a short-term sell. The updated track record for this setup is listed below. Note that out of 26 occurrences, only twice was the Dow up 100+ two days later, while it fell 100+ a total of nine times…

Dow Down 100+ Intraday, Closes Up 100+
04/01/09? Dow ??? two days later
02/05/09? Dow +207 two days later
12/05/08? Dow +55 two days later
12/03/08? Dow +43 two days later
11/26/08? Dow -577 two days later
11/18/08? Dow -872 two days later
11/13/08? Dow -561 two days later
10/23/08? Dow -515 two days later
10/16/08? Dow +286 two days later
09/26/08? Dow -292 two days later
09/18/08? Dow -4 two days later
09/16/08? Dow -39 two days later
09/11/08? Dow -516 two days later
01/31/08? Dow -15 two days later
01/23/08? Dow -63 two days later
01/10/08? Dow -75 two days later
08/14/02? Dow +35 two days later
07/24/02? Dow +73 two days later
05/01/02? Dow -53 two days later
10/25/01? Dow -193 two days later
08/10/01? Dow -4 two days later
05/04/01? Dow -68 two days later
03/09/00? Dow -64 two days later
08/05/99? Dow -86 two days later
10/02/98? Dow -42 two days later
09/01/98? Dow -145 two days later
10/28/97? Dow -117 two days later

Another negative development regarding Wednesday?s rebound is that it came on decreasing volume. When the S&P trades down over 1% intraday and then reverses to close higher on the session, it typically coincides with stepped-up volume. Wednesday?s session lacked that kind of institutional firepower. The table below notes the last thirty instances in which the S&P traded in a similar manner – down 1% intraday, up at the close, all on lower NYSE volume. Note the tendency for the S&P to turn around and close lower the next day. In 20 out of 30 occurrences stretching back to 2001, the S&P closed at a lower level the next session. That 67% win rate is significantly better than the 47% at-any-time odds for a lower S&P close one day later…

S&P -1% intraday, closes positive, volume down
04/01/09? S&P500 ??? next day
03/13/09? S&P500 -0.4% next day
03/06/09? S&P500 -1.0% next day
01/23/09? S&P500 +0.6% next day
01/16/09? S&P500 -5.3% next day
01/08/09? S&P500 -2.1% next day
12/12/08? S&P500 -1.3% next day
12/03/08? S&P500 -2.9% next day
11/25/08? S&P500 +3.5% next day
09/26/08? S&P500 -8.8% next day
09/11/08? S&P500 +0.2% next day
09/05/08? S&P500 +2.1% next day
02/22/08? S&P500 +1.4% next day
12/13/07? S&P500 -1.4% next day
11/02/07? S&P500 -0.5% next day
08/10/07? S&P500 -0.1% next day
07/28/04? S&P500 +0.5% next day
08/04/03? S&P500 -1.8% next day
07/01/03? S&P500 +1.2% next day
10/18/02? S&P500 +1.7% next day
09/16/02? S&P500 -2.0% next day
09/09/02? S&P500 +0.7% next day
08/26/02? S&P500 -1.4% next day
08/09/02? S&P500 -0.5% next day
07/03/02? S&P500 +3.7% next day
06/27/02? S&P500 -0.1% next day
06/24/02? S&P500 -1.7% next day
05/01/02? S&P500 -0.2% next day
10/05/01? S&P500 -0.8% next day
09/10/01? S&P500 -4.9% next day
08/16/01? S&P500 -1.7% next day

Beyond Thursday, I’m not particularly negative on the market. The R-Squared study that flagged the SPX 790 area as intermediate-term support remains in effect until April 7th. Also, the bullish intermediate-term ‘runaway’ setup utilizing the S&P Oscillator remains in effect until April 9th.

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

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