More on Today’s Gap in S&P Futures

Thursday’s gap up open was greeted with solid institutional buying, but large sellers appeared late to cut the 2%+ intraday gain in half. TICKscore closed at +18, Cumulative TICK +67,000, the sixteenth consecutive session with positive NYSE TICK action. New 52-week highs jumped to 127, the highest reading of the year. New 20-day highs jumped to 2,777 vs. 214 new 20-day lows, sending the raw 20-day high-low index (new highs/(new highs+new lows)) back over 90%. While the sample size is small, this has been a fairly consistent indicator of limited upside potential until a close back under 90%…

20-Day High-Low Index (raw daily number) >=90%
07/30/09 – ??/??/??… S&P500 ???
07/23/09 – 07/28/09… S&P500 +0.3%
07/20/09 – 07/21/09… S&P500 +0.4%
06/05/09 – 06/08/09… S&P500 -0.1%
06/01/09 – 06/02/09… S&P500 +0.2%
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%

When S&P futures post an unfilled upside gap (like 7/15) that remains unfilled and is then followed by a second upside gap (like 7/30) within the next month, the market is typically trading flat-to-higher one month later. See today’s intraday update for the track record. Short-term, Thursday’s late-session selloff did leave S&P futures below the open, creating a black candlestick to go along with the unfilled gap. As you might expect, this is a fairly unusual combination. There have been 194 sessions since 1990 in which S&P futures left an unfilled upside gap (low>previous day’s high). In only 25 cases, or 13% of the time did the S&Ps settle below the open. When it has occurred, the S&P typically fills the gap within the next few days. The last thirty occurrences of an unfilled upside gap in the front-month S&P futures contract that coincided with a black candlestick are listed in the table below. Note that in only three cases out of thirty was the gap not filled at some point over the next four sessions, suggesting we’ll most likely see September S&Ps trade back down to 975.50 by the middle of next week…

S&P Futures Unfilled Upside Gap w/ Black Candlestick
07/30/09… ???
09/19/08… Gap filled three days later
09/08/08… Gap filled one day later
04/18/08… Gap filled two days later
09/19/07… Gap filled one day later
08/17/07… Gap not filled within four days
06/15/07… Gap filled two days later
06/17/05… Gap filled one day later
10/04/04… Gap filled one day later
04/02/04… Gap filled four days later
10/03/03… Gap not filled within four days
07/14/03… Gap filled one day later
11/04/02… Gap filled two days later
10/17/02… Gap filled one day later
03/06/01… Gap filled three days later
11/27/00… Gap filled one day later
06/02/00… Gap not filled within four days
09/27/99… Gap filled one day later
10/12/98… Gap filled one day later
12/20/96… Gap filled one day later
10/13/95… Gap filled one day later
10/13/94… Gap filled one day later
06/12/92… Gap filled one day later
10/19/90… Gap filled four days later
01/19/90… Gap filled one day later
07/11/89… Gap filled three days later
06/22/88… Gap filled two days later
06/14/88… Gap filled two days later
01/15/88… Gap filled three days later
01/05/88… Gap filled one day later
11/12/87… Gap filled two days later

A quick rejection of an upside gap emboldens sellers, so if Thursday’s gap is filled immediately (meaning on Friday), it would tend to suggest a bit more downside is in store early next week. The last thirty occurrences in which an unfilled upside gap was filled the next day are listed in the table below. Note that in 26 out of 30 cases stretching back to 1996, or 87% of the time, the S&P closed at a subsequently lower level (below the setup day’s close) within the next four sessions. That just misses the threshold required to put it up on the board, given the S&P’s 70% at-any-time odds of posting a lower close within four sessions, but it does tend to suggest a difference between gaps that are filled eventually and those that are filled immediately…

S&P Futures Fill an Upside Gap Next Session
01/29/09… Lower S&P close one session later
11/05/08… Lower S&P close one session later
09/22/08… Lower S&P close one session later
09/09/08… Lower S&P close four sessions later
08/29/08… Lower S&P close one session later
08/25/08… No lower close within four sessions
09/20/07… Lower S&P close two sessions later
07/05/07… Lower S&P close three sessions later
08/03/06… Lower S&P close one session later
06/20/05… Lower S&P close three sessions later
10/05/04… Lower S&P close two sessions later
03/18/04… Lower S&P close one session later
07/15/03… Lower S&P close one session later
10/18/02… Lower S&P close four sessions later
10/12/01… Lower S&P close one session later
04/06/01… No lower close within four sessions
11/28/00… Lower S&P close one session later
03/06/00… Lower S&P close one session later
02/09/00… Lower S&P close two sessions later
01/18/00… Lower S&P close two sessions later
01/11/00… Lower S&P close one session later
10/25/99… Lower S&P close one session later
09/28/99… Lower S&P close one session later
11/30/98… Lower S&P close three sessions later
10/13/98… No lower close within four sessions
09/24/98… Lower S&P close one session later
08/13/98… Lower S&P close one session later
07/17/97… Lower S&P close one session later
07/07/97… Lower S&P close two sessions later
12/23/96… No lower close within four sessions

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

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