Nasdaq100 (NDX) Up Fourth Day in a Row, Posts Second Consecutive Outside Bar

The VIX/VXV Ratio closed back in market topping territory at .87 Monday. There have been five separate instances since inception of the VXV in which this ratio closed under .90, each of which preceded a lower S&P two weeks later…

VIX/VXV Ratio <.90
07/13/09… S&P500 ??? two weeks later
06/25/09… S&P500 -4.5% two weeks later
08/21/08… S&P500 -2.8% two weeks later
06/05/08… S&P500 -4.4% two weeks later
05/12/08… S&P500 -1.3% two weeks later
12/20/07… S&P500 -3.0%  two weeks later

Five cases isn’t a lot to go on, but it does tend to jibe with the extreme NASDAQ/NYSE Volume Ratio, which continues to suggest the market’s in the process of putting in a longer-term top.

When the Nasdaq100 (NDX) traded below Friday’s low early Monday morning, I considered the odds of a close above Friday’s high very slim. The NDX posted an ‘outside day up’ on Friday, and it’s virtually unheard of to see back-to-back outside days that close higher. Prior to Monday, the NDX had posted a total of 216 sessions since 1990 in which it closed higher and posted an outside day. Not once, until today, did the NDX post a second outside day up.

NYSE TICK closed at a high +1,101 Monday. I don’t typically look at closing NYSE TICK readings, but a recent exchange with a subscriber prompted me to take a second look. Here’s a look at the last thirty times the NYSE TICK closed over +1,000…

S&P Performance Following NYSE TICK Close Over +1,000
07/13/09… NYSE TICK +1101… S&P500 ??? next day
05/18/09… NYSE TICK +1087… S&P500 -0.2% next day
05/14/09… NYSE TICK +1193… S&P500 -1.1% next day
05/08/09… NYSE TICK +1195… S&P500 -2.2% next day
05/06/09… NYSE TICK +1018… S&P500 -1.3% next day
05/04/09… NYSE TICK +1059… S&P500 -0.4% next day
04/29/09… NYSE TICK +1160… S&P500 -0.1% next day
04/24/09… NYSE TICK +1195… S&P500 -1.0% next day
04/16/09… NYSE TICK +1119… S&P500 +0.5% next day
04/09/09… NYSE TICK +1258… S&P500 +0.3% next day
04/03/09… NYSE TICK +1120… S&P500 -0.8% next day
04/02/09… NYSE TICK +1295… S&P500 +1.0% next day
04/01/09… NYSE TICK +1445… S&P500 +2.9% next day
03/26/09… NYSE TICK +1365… S&P500 -2.0% next day
03/23/09… NYSE TICK +1255… S&P500 -2.0% next day
03/18/09… NYSE TICK +1247… S&P500 -1.3% next day
03/17/09… NYSE TICK +1423… S&P500 +2.1% next day
03/12/09… NYSE TICK +1239… S&P500 +0.8% next day
03/10/09… NYSE TICK +1603… S&P500 +0.2% next day
02/24/09… NYSE TICK +1213… S&P500 -1.1% next day
02/06/09… NYSE TICK +1232… S&P500 +0.2% next day
02/05/09… NYSE TICK +1112… S&P500 +2.7% next day
01/28/09… NYSE TICK +1283… S&P500 -3.3% next day
01/21/09… NYSE TICK +1055… S&P500 -1.5% next day
01/06/09… NYSE TICK +1045… S&P500 -3.0% next day
01/02/09… NYSE TICK +1424… S&P500 -0.5% next day
12/16/08… NYSE TICK +1274… S&P500 -1.0% next day
12/08/08… NYSE TICK +1077… S&P500 -2.3% next day
12/05/08… NYSE TICK +1116… S&P500 +3.8% next day
11/28/08… NYSE TICK +1233… S&P500 -8.9% next day
11/26/08… NYSE TICK +1482… S&P500 +1.0%  next day

There has been a tendency for a lower close the next day, but it’s not statistically significant and any edge vanishes when looking further back in history. Since 2000, for instance, there have been 181 sessions in which the NYSE TICK closed over +1,000. In only half of the cases (92) did the S&P close lower the next session, right in line with random.

The Nasdaq100 (NDX) closed higher for the fourth day in a row Monday, which has tilted the odds in favor of a lower close in recent years (only). Out of the last 30 times that the NDX settled higher four days in a row, 26 led to a lower close (below the setup day’s close) within the next two days…

Nasdaq100 Up Four Days in a Row
07/13/09… ???
06/29/09… Lower NDX close one session later
06/02/09… Lower NDX close one session later
05/04/09… Lower NDX close one session later
04/24/09… Lower NDX close one session later
04/03/09… Lower NDX close one session later
03/13/09… Lower NDX close one session later
01/28/09… Lower NDX close one session later
10/31/08… Lower NDX close one session later
05/30/08… Lower NDX close one session later
02/27/08… Lower NDX close one session later
02/01/08… Lower NDX close one session later
01/31/08… Lower NDX close two sessions later
12/26/07… Lower NDX close one session later
12/24/07… Lower NDX close two sessions later
12/21/07… No lower close within 1-2 sessions
12/10/07… Lower NDX close one session later
10/31/07… Lower NDX close one session later
10/10/07… Lower NDX close one session later
10/09/07… Lower NDX close two sessions later
09/27/07… Lower NDX close one session later
09/26/07… No lower close within 1-2 sessions
09/04/07… Lower NDX close one session later
08/22/07… Lower NDX close one session later
07/09/07… Lower NDX close one session later
07/06/07… Lower NDX close two sessions later
07/05/07… No lower close within 1-2 sessions
06/18/07… Lower NDX close one session later
06/04/07… Lower NDX close one session later
06/01/07… No lower close within 1-2 sessions
05/31/07… No lower close within 1-2 sessions

While the track record is significantly better than the 63% at-any-time odds for a lower NDX 1-2 days later, it’s a recent phenomenon only. Prior to 2007, the edge vanishes. It’s for this reason that this setup hasn’t been added to the board. In general there isn’t much to lean on short-term. From an intermediate-term perspective, the bearish sentiment outlook discussed last night along with today’s low VIX:VXV Ratio suggests that if the market manages to test the upper end of its recent trading range in the SPX 925 area, it would most likely represent a selling opportunity.

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

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