Gauging Short-term Sentiment with the S&P Futures Opening Quote + More on the ND/NY Volume Ratio

S&P futures managed to settle higher for the third day in a row Thursday after a rocky session, although I think the more noteworthy fact is that the S&Ps *opened* higher for the third consecutive day. If September S&P’s open higher again on Friday, it would have short-term bullish implications beginning at Friday’s close. Keep in mind that the opening quotation reflects quite a bit of information, including overnight action in European and Asian markets, early trading in the treasury and currency markets as well as any pre-opening economic releases or earning reports. When working with the opening price, it’s important to utilize futures prices (or ETF’s like SPY). Cash indexes (like the SPX) do not accurately reflect the open.

When the front-month futures contract begins to repeatedly open higher, it signals bullish sentiment that usually carries through over the short-term. The table below lists the last thirty separate instances in which S&P futures opened higher four consecutive sessions…

S&P Futures Open Higher Four Consecutive Sessions
06/01/09… Higher S&P close one session later
03/13/09… Higher S&P close two sessions later
12/26/08… Higher S&P close one session later
07/28/08… Higher S&P close one session later
07/21/08… Higher S&P close one session later
05/15/08… Higher S&P close one session later
04/28/08… Higher S&P close three sessions later
03/24/08… No higher S&P close within three days
02/14/08… Higher S&P close one session later
01/29/08… Higher S&P close two sessions later
12/12/07… No higher S&P close within three days
11/28/07… Higher S&P close one session later
07/17/07… Higher S&P close two sessions later
07/05/07… Higher S&P close one session later
06/18/07… Higher S&P close one session later
05/25/07… Higher S&P close one session later
05/03/07… Higher S&P close one session later
04/03/07… Higher S&P close one session later
03/26/07… No higher S&P close within three days
09/01/06… Higher S&P close one session later
07/21/06… Higher S&P close one session later
06/29/06… Higher S&P close two sessions later
05/26/06… Higher S&P close three sessions later
04/12/06… Higher S&P close three sessions later
04/03/06… Higher S&P close one session later
01/26/06… Higher S&P close one session later
12/21/05… Higher S&P close one session later
11/21/05… Higher S&P close one session later
10/06/05… Higher S&P close one session later
09/06/05… Higher S&P close one session later

Note that in 27 out of 30 cases, or 90% of the time, the S&P closed above the setup day’s close within the next three sessions. That’s well ahead of the 72% at-any-time odds for a higher S&P close within three days, although the edge isn’t quite strong enough to qualify as a signal. The performance figures above are measured from the close on the setup day, although you’ll know in advance if the setup will be  triggered. For instance, should S&P futures open higher on Friday, it would make the fourth consecutive up open. That means the setup above would go into effect at Friday’s close, and would call for a subsequently higher S&P close in the Monday-Wednesday time frame of next week.

In this recent post I noted the market’s generally poor performance in the week following an initial Nasdaq/NYSE Volume Ratio over 1.75. A subscriber graciously sent in a study that builds on that idea by looking for two consecutive readings over 1.75, which he found to have similarly bearish implications but on a longer-term time frame. I’ve recreated this study below, beginning with the date that the Nasdaq/NYSE Volume Ratio initially closed over 1.75 two consecutive sessions and followed by the performance of the Nasdaq100 (NDX) over the next thirty trading days. Note that in 25 out of 30 cases, or 83% of the time, the NDX was trading lower thirty days later. That’s significantly above the 43% at-any-time odds for a lower NDX thirty days later, a compelling argument that while speculators may be able to drive up prices short-term, it’s doubtful any upside breakout will be sustainable…

Nasdaq/NYSE Volume Ratio >1.75 Two Consecutive Sessions
06/05/09… NDX ??? thirty sessions later
11/04/08… NDX -11.1% thirty sessions later
10/06/08… NDX -18.4% thirty sessions later
09/05/08… NDX -25.8% thirty sessions later
08/27/08… NDX -32.9% thirty sessions later
08/11/08… NDX -15.1% thirty sessions later
05/15/08… NDX -8.7% thirty sessions later
05/05/08… NDX -0.2% thirty sessions later
10/24/07… NDX -2.8% thirty sessions later
05/22/01… NDX -14.3% thirty sessions later
05/03/01… NDX -9.4% thirty sessions later
04/20/01… NDX -4.9% thirty sessions later
02/23/01… NDX -29.6% thirty sessions later
01/18/01… NDX -29.6% thirty sessions later
01/11/01… NDX -16.9% thirty sessions later
12/18/00… NDX +2.5% thirty sessions later
12/11/00… NDX -12.7% thirty sessions later
11/24/00… NDX -18.3% thirty sessions later
11/13/00… NDX -13.3% thirty sessions later
11/08/00… NDX -27.3% thirty sessions later
11/03/00… NDX -23.4% thirty sessions later
09/25/00… NDX -9.2% thirty sessions later
09/05/00… NDX -20.4% thirty sessions later
08/25/00… NDX -15.6% thirty sessions later
07/14/00… NDX -2.7% thirty sessions later
04/14/00… NDX +6.4% thirty sessions later
03/06/00… NDX -20.8% thirty sessions later
02/18/00… NDX +2.8% thirty sessions later
12/29/99… NDX +10.9% thirty sessions later
05/24/96… NDX -4.1% thirty sessions later
05/07/96… NDX +1.0% thirty sessions later

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

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