New 52-week Highs Fail to Keep Up With the S&P500

Institutions remained active buyers Friday. TICKscore closed at a strong +54, keeping the Cumulative TICKscore in a solid uptrend. Cumulative TICK settled at +113,000. Breadth ended 6:1 positive, sending the NYSE McClellan Oscillator back over +150. Should breadth close 3:2 positive on Monday, it would keep the McClellan in overbought territory a second consecutive session and trigger a short-term sell.

Interesting to note that despite the S&P gaining over 2% on Friday and hitting its highest level of the week, new 52-week highs contracted. In fact, new 52-week highs have been falling ever since Monday’s spike, suggesting the rally has become less and less broad-based. That’s usually a sign of weakness for the short-term. When the S&P gains over 0.75% and posts higher highs and higher lows, you won?t typically see a drop in the number of new 52-week highs. The last thirty times this pattern has occurred are noted in the table below, along with the S&P?s performance over the next three trading days. Note that in 21 out of the last 30 occurrences, or 70% of the time, the S&P500 was trading at a lower level three sessions later, significantly greater than the 46% at-any-time odds for a lower S&P three sessions later.

S&P +0.75% & Rally Day, New 52-week Highs Drop
05/08/09? S&P500 ??? three sessions later
05/06/09? S&P500 +1.1% (open – ends Monday)
03/04/09? S&P500 -5.1% three sessions later
02/03/09? S&P500 +3.6% three sessions later
01/28/09? S&P500 -5.6% three sessions later
01/02/09? S&P500 -2.7% three sessions later
11/28/08? S&P500 -2.9% three sessions later
11/24/08? S&P500 +5.2% three sessions later
11/04/08? S&P500 -7.4% three sessions later
10/31/08? S&P500 -1.7% three sessions later
10/13/08? S&P500 -5.7% three sessions later
07/16/08? S&P500 +1.2% three sessions later
07/08/08? S&P500 -2.7% three sessions later
05/15/08? S&P500 -0.7% three sessions later
05/12/08? S&P500 +1.4% three sessions later
03/18/08? S&P500 +1.4% three sessions later
02/13/08? S&P500 -1.4% three sessions later
01/24/08? S&P500 +0.8% three sessions later
01/10/08? S&P500 -2.8% three sessions later
11/23/07? S&P500 +2.0% three sessions later
07/28/06? S&P500 -0.0% three sessions later
07/03/06? S&P500 -1.2% three sessions later
02/08/06? S&P500 -0.2% three sessions later
09/02/04? S&P500 -0.2% three sessions later
04/05/04? S&P500 -1.0% three sessions later
05/06/03? S&P500 -0.1% three sessions later
04/23/03? S&P500 -0.5% three sessions later
03/19/03? S&P500 -1.1% three sessions later
09/25/02? S&P500 -2.9% three sessions later
09/06/02? S&P500 +1.7% three sessions later
08/22/02? S&P500 -2.9% three sessions later
08/15/02? S&P500 +0.8% three sessions later

Note that this pattern occurred twice last week, on Wednesday and Friday, indicating the market is likely to consolidate some of its recent gains heading into midweek.

But from an intermediate-term perspective, assuming the S&P holds above 907 on Monday, there’s little reason to think we’ll see more than a short-term correction. The oversold volatility setup discussed last Tuesday never ended up being triggered, as the previous day’s low for the OEX held on each successive session. That’s the kind of action seen in a persistent uptrend. Also note that the two-week buy setup based on our version of Standard & Poors’ Oscillator will go into effect at Monday’s close as long as SPX holds above 907. The reasoning is that the Oscillator closed over 7.0 last Monday (May 4th). Note from the long-term chart that readings over 7 are rare. Contrary to what you might think, unusually high readings more often than not lead to higher prices over the intermediate-term. The reason is that this is not an overbought/oversold oscillator. You want to trade on the same side as the indicator, long when it?s over zero and short when it?s under zero. This is why unusually high readings are generally not bearish. They merely reflect an unusually strong trend. Two-thirds of the time, the S&P is trading at an even higher level one week later, which is pretty impressive considering that 7+ readings always come at relatively high points on the daily chart. What?s especially impressive is the performance of the S&P when it is higher one week later (in other words, when there?s immediate follow-through). The table below lists all 28 instances since 1965 in which the S&P closed higher one week after the S&P Oscillator crossed over 7.0. Note the market?s consistently solid performance over the intermediate-term. In only two cases out of 28 was the S&P down 1% or more two weeks later. Gains are not especially large, but the market generally has a consistent underlying bid.

S&P Oscillator Over 7.0, SPX Higher One Week Later
04/13/09? S&P -0.1% two weeks later
03/26/09? S&P +2.9% two weeks later
06/08/04? S&P +0.5% two weeks later
01/07/04? S&P +0.9% two weeks later
06/10/03? S&P +0.6% two weeks later
03/15/02? S&P -2.3% two weeks later
10/30/98? S&P +3.8% two weeks later
05/16/97? S&P +1.3% two weeks later
01/08/92? S&P +1.6% two weeks later
02/06/91? S&P +2.2% two weeks later
01/20/87? S&P +3.0% two weeks later
02/28/86? S&P +4.9% two weeks later
01/28/85? S&P -0.1% two weeks later
08/13/84? S&P +0.6% two weeks later
10/19/82? S&P +0.8% two weeks later
08/30/82? S&P +3.3% two weeks later
08/11/78? S&P +0.5% two weeks later
05/02/78? S&P +1.7% two weeks later
11/23/77? S&P -4.3% two weeks later
01/13/76? S&P +4.9% two weeks later
02/04/75? S&P +4.0% two weeks later
01/14/75? S&P +7.1% two weeks later
10/02/73? S&P +1.1% two weeks later
12/15/71? S&P +2.9% two weeks later
12/10/70? S&P +0.9% two weeks later
09/03/70? S&P -0.9% two weeks later
04/17/68? S&P +0.6% two weeks later
01/20/67? S&P +1.2% two weeks later

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

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