S&P Futures Gap Down, Stage Late-Day Comeback

S&P futures gapped lower Thursday and remained under pressure throughout the session, leaving an unfilled downside gap on the daily chart. A late-session rally brought the S&Ps back to opening levels and near session highs, but that’s not necessarily a positive development for the short-term. When the front-month S&P futures contract posts an unfilled downside gap (high<previous day’s low) and settles in the upper half of the day’s range, it’s been a more reliable sell signal than buy signal for the following session. The last thirty occurrences are listed below…

S&P Futures Gap Down, Close In Upper Half of Day’s Range
05/21/09… S&P futures ??? next session
10/22/08… S&P futures +1.4% next session
10/06/08… S&P futures -4.5% next session
05/20/08… S&P futures -1.7% next session
09/07/07… S&P futures -0.3% next session
08/01/06… S&P futures +0.6% next session
11/17/03… S&P futures -1.0% next session
09/22/03… S&P futures +0.4% next session
02/04/03… S&P futures -0.6% next session
12/18/02… S&P futures -0.8% next session
09/23/02… S&P futures -1.6% next session
09/17/01… S&P futures -0.4% next session
02/16/01… S&P futures -1.6% next session
09/14/99… S&P futures -1.5% next session
08/19/99… S&P futures +1.0% next session
07/29/99… S&P futures -1.3% next session
06/23/99… S&P futures -0.7% next session
06/10/99… S&P futures -0.9% next session
08/21/98… S&P futures +0.6% next session
08/11/98… S&P futures +1.8% next session
04/27/98… S&P futures -0.2% next session
03/05/98… S&P futures +1.8% next session
12/19/97… S&P futures +0.6% next session
11/07/97… S&P futures -0.6% next session
12/11/96… S&P futures -1.6% next session
04/08/96… S&P futures -0.3% next session
02/20/96… S&P futures +1.3% next session
07/19/95… S&P futures +0.4% next session
09/09/94… S&P futures -0.5% next session
09/01/94… S&P futures -0.5% next session
08/05/94… S&P futures +0.1% next session

Note that in 19 out of the last 30 cases, or 63% of the time, the S&P closed lower the following session, well above the 46% at-any-time odds for a lower S&P close the next day. It’s not quite enough of an edge to qualify as a signal, but it’s close. In the majority of cases, the market continued to move in the direction of the gap (that is, down) over the short-term. When looking for a bounce after a gap down, it’s more favorable to see the market close in the bottom 25% of the day’s range. Then the odds are pretty much reversed in favor of a higher close the following session. Viewed from that perspective, today’s late-session comeback was not a positive development.

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

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