S&P Futures Post an Unfilled Upside Gap on Active Speculative Participation

Stock indices posted surprisingly strong gains Monday on modest institutional participation, with TICKscore settling at +16 and Cumulative TICK at +58,000. The S&P500 closed above its early May top, following the lead of such indicators as Cumulative TICKscore and cumulative breadth, both of which broke above their early May highs last week. Those that were caught looking the wrong way recently (hand raised) may want to keep an eye on a new chart added to the charting section, Band Spread, which charts the number of stocks that closed above their upper bollinger bands and below their lower bollinger bands. Note that more stocks have consistently been closing above their upper bands than below their lower bands, even during the recent trading range. Stocks were not breaking down, a sign that while buying power may have subsided, there were no real sellers in the market. Notice from the chart that the raw difference between stocks closing above & below their respective bollinger bands tends to lead price. Prior to most significant selloffs, there’s typically an initial spike lower in this ‘band spread’ indicator, something we haven’t seen since February. I’ll have more on utilizing this indicator to identify meaningful shifts in the intermediate-term trend in an upcoming column.

One of the more significant developments on a very short-term basis is the fact that S&P futures posted back-to-back upside gaps Friday and Monday. While the Friday gap was filled intraday while Monday’s remains open, just the fact that the futures managed back-to-back days of an open above the previous session?s high is a sign of strength for the next day (Tuesday in this case). The last thirty times the front-month S&Ps opened above the previous day’s high on two consecutive sessions are listed in the table below…

S&P Futures Open >Previous Session’s High Two Days
06/01/09? S&P500 ??? next day
05/07/09? S&P500 +2.4% next day
03/16/09? S&P500 +3.2% next day
12/31/08? S&P500 +3.2% next day
11/25/08? S&P500 +3.5% next day
10/14/08? S&P500 -9.0% next day
05/14/08? S&P500 +1.1% next day
04/16/08? S&P500 +0.1% next day
04/02/08? S&P500 +0.1% next day
03/19/08? S&P500 +2.4% next day
01/25/08? S&P500 +1.8% next day
12/24/07? S&P500 +0.1% next day
10/29/07? S&P500 -0.7% next day
09/27/07? S&P500 -0.3% next day
09/19/07? S&P500 -0.7% next day
08/23/07? S&P500 +1.2% next day
06/01/07? S&P500 +0.2% next day
04/17/07? S&P500 +0.1% next day
04/16/07? S&P500 +0.2% next day
03/09/07? S&P500 +0.3% next day
08/16/06? S&P500 +0.2% next day
08/15/06? S&P500 +0.8% next day
06/30/06? S&P500 +0.8% next day
05/26/06? S&P500 -1.6% next day
12/27/05? S&P500 +0.1% next day
11/18/05? S&P500 +0.5% next day
02/01/05? S&P500 +0.3% next day
10/04/04? S&P500 -0.1% next day
05/19/04? S&P500 +0.1% next day
09/03/03? S&P500 +0.2% next day
08/22/03? S&P500 +0.1% next day

Note that in 24 out of the last 30 occurrences, or 80% of the time, the S&P500 closed higher the following session, significantly above the 55% at-any-time odds for a higher S&P close one day later.

New 20-day highs swamped 20-day lows by over a 10:1 margin, sending the 20-day High-Low Index (also now posted daily in the charting section) above 90%. Note from the long-term chart that readings in this territory are very unusual, and only really began showing up this year as the herding tendency has grown. The table below lists each date over the last five years when the raw 20-day High-Low Index (new highs/(new highs+new lows)) closed over 90%, followed by the date when the Index closed back under 90% and the performance of the S&P500 in this time frame. Eleven cases isn?t much to go on, but the typically flat-to-down performance of the S&P suggests the market?s a bit extended on a short-term basis, and that further gains on Tuesday could quickly be erased…

20-Day High-Low Index (raw daily number) >=90%
06/01/09 – ??/??/??? S&P500 ???
05/08/09 – 05/11/09? S&P500 -2.2%
05/04/09 – 05/07/09? S&P500 +0.0%
04/29/09 – 05/01/09? S&P500 +0.4%
04/16/09 – 04/20/09? S&P500 -3.8%
04/09/09 – 04/14/09? S&P500 -1.8%
04/02/09 – 04/07/09? S&P500 -2.3%
03/23/09 – 03/30/09? S&P500 -4.3%
03/19/09 – 03/20/09? S&P500 -2.0%
01/02/09 – 01/07/09? S&P500 -2.7%
01/09/06 – 01/10/06? S&P500 -0.0%
07/11/05 – 07/12/05? S&P500 +0.2%

From an intermediate-term perspective, it wasn’t a positive sign to see today’s breakout accompanied by a drop in NYSE volume and another uptick in NASDAQ volume, the fifth straight day of rising NASDAQ volume. The combination sent the NASDAQ/NYSE Volume Ratio up to a high 1.75 at Monday’s close, triggering an intermediate-term sell. Historically, when speculative volume is running this high, the market has a difficult time sustaining rallies. The table below lists the last thirty times that the ND/NY Volume Ratio initially closed at or above 1.75 (meaning it was below 1.75 the day before). Note that the NDX was twice as likely to trade lower over the next week, well above the 48% at-any-time odds for a lower Nasdaq five sessions later?

Nasdaq/NYSE Volume Ratio closes >=1.75
06/01/09? Nasdaq100 ??? one week later
11/03/08? Nasdaq100 -6.3% one week later
10/30/08? Nasdaq100 -6.9% one week later
10/23/08? Nasdaq100 +7.7% one week later
10/21/08? Nasdaq100 +1.1% one week later
10/03/08? Nasdaq100 -13.7% one week later
09/04/08? Nasdaq100 -0.1% one week later
09/02/08? Nasdaq100 -7.0% one week later
08/26/08? Nasdaq100 -2.8% one week later
08/19/08? Nasdaq100 -1.2% one week later
08/14/08? Nasdaq100 -2.9% one week later
08/08/08? Nasdaq100 +1.6% one week later
08/06/08? Nasdaq100 +2.5% one week later
08/01/08? Nasdaq100 +5.5% one week later
06/19/08? Nasdaq100 -6.4% one week later
05/19/08? Nasdaq100 -1.1% one week later
05/14/08? Nasdaq100 -2.0% one week later
05/07/08? Nasdaq100 +2.4% one week later
05/02/08? Nasdaq100 -1.1% one week later
10/30/07? Nasdaq100 +0.7% one week later
10/26/07? Nasdaq100 +0.9% one week later
10/23/07? Nasdaq100 +0.1% one week later
10/12/07? Nasdaq100 -2.2% one week later
10/08/07? Nasdaq100 -0.2% one week later
03/02/04? Nasdaq100 -2.4% one week later
12/31/03? Nasdaq100 +4.3% one week later
11/29/02? Nasdaq100 -4.5% one week later
07/01/02? Nasdaq100 -0.9% one week later
05/14/02? Nasdaq100 -3.8% one week later
06/08/01? Nasdaq100 -10.3% one week later
05/21/01? Nasdaq100 -8.7% one week later

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

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