S&P, Nasdaq Break Into New 20-day Lows, Triggering a Number of Short-term Setups

Tuesday’s selloff fulfilled short-term bearish setups on the board, and at the same time triggered a pair of bullish setups. While selling pressure picked up a bit in the final hour, overall institutional participation remained light during Tuesday’s 2% decline. TICKscore settled at -13, Cumulative TICK -42,000. Breadth settled near 4:1 negative territory, yet despite the lopsided market internals, volume remained below average and actually came in slightly below Monday’s levels on the NYSE. That’s the second time in the last three sessions that we’ve seen this combination of negative breadth and light volume, usually a positive sign for the near-term. The table below lists each of the last thirty instances in which NYSE breadth closed at least 2:1 negative and NYSE volume declined from the previous session on two separate occasions within a three-day time frame.

Breadth 2:1 Negative, Volume Declines Two Days out of Past Three
07/07/09… ???
04/07/09… Higher S&P close one session later
03/03/09… Higher S&P close one session later
01/09/09… No higher close next 1-2 sessions
11/17/08… Higher S&P close one session later
10/27/08… Higher S&P close one session later
10/09/08… Higher S&P close two sessions later
09/23/08… Higher S&P close two sessions later
07/28/08… Higher S&P close one session later
03/10/08… Higher S&P close one session later
11/21/07… Higher S&P close one session later
11/19/07… Higher S&P close one session later
11/12/07… Higher S&P close one session later
07/14/06… Higher S&P close two sessions later
08/05/05… Higher S&P close two sessions later
07/21/03… Higher S&P close one session later
01/27/03… Higher S&P close one session later
10/09/02… Higher S&P close one session later
09/23/02… Higher S&P close two sessions later
08/05/02… Higher S&P close one session later
07/22/02… Higher S&P close two sessions later
01/14/99… Higher S&P close one session later
08/03/98… No higher close next 1-2 sessions
07/27/98… No higher close next 1-2 sessions
06/15/98… Higher S&P close one session later
04/24/98… No higher close next 1-2 sessions
07/21/97… Higher S&P close one session later
05/11/94… Higher S&P close one session later
09/26/90… Higher S&P close two sessions later
09/24/90… Higher S&P close one session later
11/07/88… Higher S&P close one session later

Note that in 26 out of 30 cases, or 87% of the time, the S&P500 posted a subsequently higher close within the next two sessions, significantly above the 66% at-any-time odds for a higher S&P close within the next two sessions.

Both the SPX and NDX traded below Monday’s lows and neither traded above Monday’s highs, yet new 52-week lows contracted on both the NYSE and NASDAQ. Since the inception of the Nasdaq100 in 1985, there have only been 35 instances in which the SPX and NDX hit one-month lows and new 52-week lows declined on both exchanges, all of which are listed in the table below. Note that in 33 out of 35 cases, or 94% of the time, the S&P closed at a subsequently higher level 2-4 trading days later, significantly greater than the 70% at-any-time odds of a higher S&P 2-4 days later…

NDX & SPX Hit One-Month Lows, New 52-week Lows Decline
07/07/09… ???
02/23/09… Higher SPX close two sessions later
11/21/08… Higher SPX close two sessions later
10/09/08… Higher SPX close two sessions later
10/07/08… Higher SPX close four sessions later
09/17/08… Higher SPX close two sessions later
06/12/08… Higher SPX close two sessions later
01/23/08… Higher SPX close three sessions later
01/07/08… Higher SPX close three sessions later
11/12/07… Higher SPX close two sessions later
11/09/07… Higher SPX close two sessions later
07/31/07… Higher SPX close two sessions later
05/18/06… Higher SPX close two sessions later
01/03/06… Higher SPX close two sessions later
08/24/05… Higher SPX close three sessions later
04/18/05… Higher SPX close three sessions later
08/13/04… Higher SPX close two sessions later
07/23/04… Higher SPX close two sessions later
09/29/03… Higher SPX close two sessions later
08/05/03… Higher SPX close two sessions later
12/31/02… Higher SPX close two sessions later
10/08/02… Higher SPX close two sessions later
09/20/02… Higher SPX close four sessions later
09/18/01… No higher SPX close 2-4 sessions later
03/20/01… Higher SPX close four sessions later
12/21/00… Higher SPX close two sessions later
10/13/00… Higher SPX close four sessions later
10/18/99… Higher SPX close two sessions later
09/01/98… Higher SPX close four sessions later
08/28/98… No higher SPX close 2-4 sessions later
06/24/93… Higher SPX close two sessions later
02/17/93… Higher SPX close two sessions later
06/18/92… Higher SPX close two sessions later
06/26/90… Higher SPX close two sessions later
11/11/88… Higher SPX close two sessions later
01/21/88… Higher SPX close two sessions later

Setups triggered Tuesday indicate the potential for a short-term bounce, but I wouldn’t want to overstay my welcome on the long side given that the Nasdaq just underperformed the S&P for the third consecutive session, triggering the bearish three-day  setup outlined in Monday evening’s column. While not so much a sell signal as a sign of limited upside potential, this does suggest the NDX will have a tough time gaining much more than 0.5% through the end of the week. A rally above NDX 1412 over the next 1-2 days would therefore be called into question in terms of its sustainability heading into Friday’s close.

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

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