S&P Futures Gap Down, Stage Late-Session Comeback on Light Institutional Participation

Stock indexes closed lower Wednesday, fulfilling short-term bearish setups triggered Tuesday. S&P futures gapped lower 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 above the day’s midpoint, but as I recently discussed that?s not necessarily a positive development for the short-term. When the front-month S&P futures contract posts an unfilled downside gap 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
06/03/09? S&P futures ??? next session
05/21/09? S&P futures -0.4% 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

Note that in 20 out of the last 30 cases, or 67% 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. The Nasdaq/NYSE Volume Ratio remains stubbornly high, a bearish sign for the intermediate-term, but it’s hard not to notice that institutional investors were not active sellers Wednesday. Even at midday, when the S&P was down over 2%, institutions were not actively selling, as evidenced by the neutral TICKscore reading. As a reminder, TICKscore measures whether the NYSE TICK spent more of the day’s session in extreme positive or negative territory, and is updated throughout the day on our intraday market internals snapshot. TICKscore never traded below -2 and ended the session at +5, a sign that institutions were not actively participating on the sell side.

Wednesday’s unfilled downside gap and late-session comeback suggests the market is likely to remain under pressure Thursday, but Wednesday’s Nasdaq outperformance has positive implications looking out to next Monday, indicating short-term conditions are likely to remain choppy. The NDX closed down only 0.3% Wednesday vs. a 1.4% drop for the S&P500. This type of rotational trading usually spells higher prices for the S&P looking out three trading days. Listed below are each of the last thirty instances in which the NDX settled down less than 0.5% (or managed a gain) on a day when the S&P fell 1%+. Note that in 25 out of 30 cases, or 83% of the time, the S&P closed at a higher level three sessions later, significantly greater than the 55% at-any-time odds for a higher S&P three sessions later?

S&P500 Drops 1%+, Nasdaq Down Less than 0.5%
06/03/09? S&P500 ??? three days later
05/15/09? S&P500 +2.3% three days later
05/11/09? S&P500 -1.8% three days later
04/27/09? S&P500 +1.8% three days later
03/19/09? S&P500 +2.8% three days later
02/20/09? S&P500 -0.7% three days later
10/29/08? S&P500 +3.9% three days later
10/10/08? S&P500 +1.0% three days later
10/08/08? S&P500 +1.9% three days later
08/12/08? S&P500 +0.7% three days later
07/31/08? S&P500 +1.4% three days later
07/15/08? S&P500 +3.8% three days later
05/23/08? S&P500 +1.6% three days later
06/13/06? S&P500 +2.3% three days later
05/12/05? S&P500 +1.2% three days later
03/09/05? S&P500 -0.0% three days later
04/16/03? S&P500 +3.6% three days later
01/22/03? S&P500 -3.5% three days later
10/09/02? S&P500 +8.3% three days later
09/24/02? S&P500 +1.0% three days later
04/29/02? S&P500 +1.8% three days later
03/06/00? S&P500 +0.8% three days later
02/16/00? S&P500 -2.6% three days later
05/27/99? S&P500 +1.1% three days later
01/14/99? S&P500 +3.7% three days later
07/09/97? S&P500 +1.2% three days later
03/13/97? S&P500 +0.0% three days later
04/10/96? S&P500 +1.4% three days later
02/20/96? S&P500 +2.9% three days later
01/10/96? S&P500 +0.2% three days later
06/24/94? S&P500 +1.1% three days later

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

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