What to Expect After the Holiday Break

New chart: 20-day New Highs – New Lows (long-term version)

On a short-term basis, it wasn’t 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 1.5%, suggesting the next few sessions will be challenging ones for the market. Historically, the S&P struggles over the next three days 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 fell 1.5%+?

S&P Closes Higher Despite 1.5%+ Selloff for BKX
04/08/09? S&P500 ??? three sessions later
03/06/09? S&P500 +5.6% three sessions later
03/04/09? S&P500 -5.1% 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

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.

SPY volume hit a fresh one-month low Wednesday as only 230 million shares traded hands. Institutional investors have been mostly absent from the market since last Friday, and that trend has only intensified in the last couple of days. If you’re bullish, you don’t want to see such low volume on a day when the SPY posts a solid 1%+ gain. The table below lists every instance over the past decade in which the SPY gained 1% or more on the lightest volume in three weeks?

SPY +1%, Volume at Three-week Low
04/08/09? SPY ???
11/28/08? SPY -5.4% two sessions later
10/20/08? SPY -8.3% two sessions later
08/22/08? SPY -1.7% two sessions later
11/23/07? SPY -1.1% two sessions later
08/24/07? SPY -3.1% two sessions later
11/14/02? SPY -0.3% two sessions later
05/13/02? SPY +2.3% three sessions later
11/23/01? SPY -0.2% two sessions later
11/19/01? SPY -1.5% two sessions later
11/13/01? SPY -0.2% three sessions later
04/09/01? SPY +3.7% three sessions later
03/30/01? SPY -5.4% two sessions later
12/26/00? SPY -0.9% three sessions latere
11/24/00? SPY -0.9% two sessions later
08/14/00? SPY -0.4% two sessions later
07/03/00? SPY -1.0% two sessions later
05/15/00? SPY -0.1% two sessions later
03/09/00? SPY -1.6% two sessions later
08/20/99? SPY +3.3% three sessions later
03/18/99? SPY -1.8% two sessions later
07/06/98? SPY -0.1% three sessions later
07/01/98? SPY +1.0% three sessions later

Note that in 18 out of 22 occurrences, or 82% of the time, the SPY posted a lower close 2-3 trading days later, significantly greater than the 57% at-any-time odds of a lower SPY close 2-3 sessions later.

From a seasonal perspective, the stock market has displayed a notable tendency to trade lower on the day following the Good Friday/Easter holiday. The table below highlights the performance of the S&P following the upcoming holiday during each of the last thirty years…

Session Following Good Friday/Easter Holiday
04/16/79… S&P500 -0.9%
04/07/80… S&P500 -1.9%
04/20/81… S&P500 +0.6%
04/12/82… S&P500 -0.2%
04/04/83… S&P500 +0.0%
04/23/84… S&P500 -0.8%
04/08/85… S&P500 -0.6%
03/31/86… S&P500 -0.0%
04/20/87… S&P500 -0.3%
04/04/88… S&P500 -1.1%
03/27/89… S&P500 +0.6%
04/16/90… S&P500 +0.1%
04/01/91… S&P500 -1.0%
04/20/92… S&P500 -1.4%
04/12/93… S&P500 +1.5% (*)
04/04/94… S&P500 -1.5%
04/17/95… S&P500 -0.6%
04/08/96… S&P500 -1.8%
03/31/97… S&P500 -2.2%
04/13/98… S&P500 -0.1%
04/05/99… S&P500 +2.1% (*)
04/24/00… S&P500 -0.3%
04/16/01… S&P500 -0.3%
04/01/02… S&P500 -0.1%
04/21/03… S&P500 -0.2%
04/12/04… S&P500 +0.5%
03/28/05… S&P500 +0.2%
04/17/06… S&P500 -0.3%
04/09/07… S&P500 +0.1%
03/24/08… S&P500 +1.5% (*)
04/13/09… S&P500 ???

Note that in 20 out of 30 cases, or 67% of the time, the S&P posted a lower close the day immediately following the Good Friday holiday. That’s well above the 47% at-any-time odds for a lower S&P close one session later. In only three cases out of thirty did the S&P manage to gain more than 0.6%. While the volume studies discussed in my last column suggest the market will remain on firm ground Thursday, it looks increasingly likely that choppy conditions will prevail. At this point, I’d expect a higher close on Thursday to be followed by a short-term selloff early next week.

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

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