S&P Closes Higher Following Thursday’s Wide Range Bar

Stock indexes followed through from Thursday’s breakout session with another higher close, the second time in less than two weeks we’ve seen bullish follow-through immediately following a wide-range bar.  As I mentioned the last time this occurred on  July 14th, this has bullish implications looking out two weeks. The last thirty occurrences are listed in the table below…

S&P Closes Higher after WR20 Day w/ 3:1+ Positive Breadth
07/24/09… S&P500 ??? two weeks later
07/14/09… S&P500 +8.1% two weeks later (open)
08/11/08… S&P500 -3.0% two weeks later
07/17/08… S&P500 +0.6% two weeks later
09/19/07… S&P500 +0.7% two weeks later
11/07/06… S&P500 +1.4% two weeks later
10/05/06… S&P500 +1.0% two weeks later
09/13/06… S&P500 +1.4% two weeks later
04/19/06… S&P500 -0.2% two weeks later
01/04/06… S&P500 +0.9% two weeks later
11/05/04… S&P500 +0.4% two weeks later
05/26/04… S&P500 +1.9% two weeks later
10/02/03… S&P500 +2.9% two weeks later
03/17/00… S&P500 +2.3% two weeks later
10/16/98… S&P500 +4.0% two weeks later
04/30/97… S&P500 +4.3% two weeks later
02/06/95… S&P500 +0.3% two weeks later
12/24/91… S&P500 +4.6% two weeks later
01/18/91… S&P500 +3.3% two weeks later
05/14/90… S&P500 +1.7% two weeks later
05/15/89… S&P500 +0.9% two weeks later
01/05/89… S&P500 +2.5% two weeks later
09/06/88… S&P500 +1.6% two weeks later
06/01/88… S&P500 +2.9% two weeks later
01/06/87… S&P500 +6.4% two weeks later
01/05/87… S&P500 +6.8% two weeks later
03/12/86… S&P500 +2.1% two weeks later
12/16/85… S&P500 -0.4% two weeks later
05/13/85… S&P500 +1.8% two weeks later
01/22/85… S&P500 +2.9% two weeks later
08/06/84… S&P500 +1.4% two weeks later
08/03/84… S&P500 +1.1% two weeks later

Note that in 27 out of 30 cases, or 90% of the time, the S&P was trading at an even higher level two weeks later. That’s significantly above the 58% at-any-time odds for a higher S&P500 two weeks later. When the market has followed through with another higher close immediately after a bullish ‘wide range’ session, it’s been a reliable indication of further upside over the next ten trading days.

Short-term, the market’s looking a bit overextended. The 20-day New High-Low Index closed above 90% for the second day in a row, and the S&P500 posted a fifth consecutive ‘higher high’ and closed higher, a sign of short-term overbought conditions. When the S&P closes higher after five consecutive higher highs, there’s a notable tendency for the market to reverse course and close lower 3-4 trading days later.  The last thirty occurrences are listed in the table below. Note that in 25 cases, or 83% of the time, the S&P closed at a lower level 3-4 sessions later, well above the 55% at-any-time odds of a lower S&P 3-4 days later…

Five Higher Highs and S&P Closes Higher
07/24/09… ???
07/01/09… Lower S&P close three sessions later
03/17/09… Lower S&P close three sessions later
01/06/09… Lower S&P close three sessions later
05/16/08… Lower S&P close three sessions later
08/24/07… Lower S&P close three sessions later
07/03/07… Lower S&P close four sessions later
06/04/07… Lower S&P close three sessions later
03/21/07… Lower S&P close four sessions later
02/06/07… Lower S&P close three sessions later
01/16/07… Lower S&P close three sessions later
10/26/06… Lower S&P close three sessions later
08/18/06… Lower S&P close three sessions later
07/28/06… Lower S&P close three sessions later
04/20/06… Lower S&P close three sessions later
03/14/06… No lower close 3-4 sessions later
02/22/06… Lower S&P close four sessions later
01/30/06… Lower S&P close three sessions later
01/09/06… Lower S&P close three sessions later
11/23/05… Lower S&P close three sessions later
06/16/05… No lower close 3-4 sessions later
05/23/05… No lower close 3-4 sessions later
03/07/05… Lower S&P close three sessions later
12/15/04… Lower S&P close three sessions later
11/01/04… No lower close 3-4 sessions later
10/04/04… Lower S&P close three sessions later
08/02/04… Lower S&P close three sessions later
05/27/04… Lower S&P close four sessions later
04/01/04… No lower close 3-4 sessions later
01/21/04… Lower S&P close four sessions later
01/05/04… Lower S&P close four sessions later

While the S&P made a new high Friday, we saw a contraction in new 52-week highs and an expansion of new 52-week lows on both the NYSE and NASDAQ. That usually means a rally is on shaky ground short-term, with the S&P typically closing at a subsequently lower level within the next few sessions. Every instance in which the S&P posted higher highs, higher lows and a higher close on a day when new 52-week highs contracted and new lows expanded (on both exchanges) is listed in the table below. Note that in 20 out of the last 22 cases, the S&P closed lower (below the setup day’s close) within three days…

New Highs Contract, New Lows Expand on SPX Rally Day
07/24/09… ???
04/13/09… Lower S&P close one session later
11/04/08… Lower S&P close one session later
05/15/08… Lower S&P close three sessions later
04/17/07… Lower S&P close two sessions later
08/03/05… Lower S&P close one session later
02/08/05… Lower S&P close one session later
12/23/04… Lower S&P close one session later
07/30/02… Lower S&P close two sessions later
03/08/02… Lower S&P close three sessions later
07/17/00… Lower S&P close one session later
03/02/00… Lower S&P close three sessions later
08/24/99… Lower S&P close two sessions later
07/13/98… No lower close within three sessions
07/15/97… Lower S&P close three sessions later
06/10/97… No lower close within three sessions
04/16/97… Lower S&P close one session later
12/26/95… Lower S&P close two sessions later
10/19/95… Lower S&P close one session later
07/14/92… Lower S&P close one session later
11/13/91… Lower S&P close one session later
01/18/91… Lower S&P close one session later
03/19/90… Lower S&P close one session later

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

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