ADX for the SPX Hits Extreme Territory

As mentioned in today’s intraday tweets, the 10-day moving average of the CBOE equity put/call ratio closed higher for the second day in a row Monday, suggesting a potential shift from the fearlessness of the last few weeks (probably due to all the SPX 1,000 hype). This is particularly noteworthy considering the S&P closed higher both Friday and today. The last thirty times the S&P closed higher two consecutive sessions with a rising equity put/call ratio average are listed in the table below. Note that in 23 out of 30 cases, or 77% of the time, the S&P closed lower two sessions later, significantly above the 50% at-any-time odds for a lower S&P two days later…

CBOE Equity Put/Call 10d Avg Rising, S&P Closes Up Two
08/03/09… ???
06/19/09… Lower S&P500 close two sessions later
04/24/09… Lower S&P500 close two sessions later
04/02/09… No lower close two sessions later
02/12/09… Lower S&P500 close two sessions later
01/16/09… Lower S&P500 close two sessions later
09/12/08… Lower S&P500 close two sessions later
09/11/08… Lower S&P500 close two sessions later
09/08/08… Lower S&P500 close two sessions later
06/16/08… Lower S&P500 close two sessions later
06/13/08… Lower S&P500 close two sessions later
05/29/08… Lower S&P500 close two sessions later
04/07/08… Lower S&P500 close two sessions later
02/13/08… Lower S&P500 close two sessions later
02/12/08… Lower S&P500 close two sessions later
01/10/08… Lower S&P500 close two sessions later
12/24/07… Lower S&P500 close two sessions later
12/13/07… Lower S&P500 close two sessions later
10/23/07… Lower S&P500 close two sessions later
08/02/07… Lower S&P500 close two sessions later
05/30/07… No lower close two sessions later
05/04/07… No lower close two sessions later
05/03/07… No lower close two sessions later
05/02/07… No lower close two sessions later
03/12/07… Lower S&P500 close two sessions later
03/09/07… Lower S&P500 close two sessions later
02/14/07… No lower close two sessions later
01/31/07… No lower close two sessions later
12/05/06… Lower S&P500 close two sessions later
10/31/06… Lower S&P500 close two sessions later
10/26/06… Lower S&P500 close two sessions later

Also noteworthy that NYSE volume was down 19.4% from Friday’s level, a fairly steep dropoff in volume considering the solid up day with nearly 5:1 positive breadth. The last thirty times that NYSE volume declined 20%+ from the previous session and breadth closed at least 2:1 positive are listed in the table below. Note that in 24 out of 30 cases, or 80% of the time, the S&P posted a subsequently lower close within the next two days. This setup wasn’t technically triggered Monday, but it was close enough to warrant a mention…

2:1 Positive Breadth & NYSE Volume Down 20%+
07/01/09… Lower S&P close one session later
04/03/09… Lower S&P close one session later
03/23/09… Lower S&P close one session later
03/17/09… No lower close within next two days
11/28/08… Lower S&P close one session later
11/26/08… Lower S&P close two sessions later
10/20/08… Lower S&P close one session later
10/13/08… Lower S&P close one session later
03/24/08… Lower S&P close two sessions later
01/14/08… Lower S&P close one session later
12/24/07… Lower S&P close two sessions later
11/23/07… Lower S&P close one session later
06/01/07… Lower S&P close two sessions later
05/25/07… No lower close within next two days
03/19/07… No lower close within next two days
03/15/07… Lower S&P close one session later
07/03/06… Lower S&P close one session later
05/26/06… Lower S&P close one session later
05/25/06… Lower S&P close two sessions later
11/24/04… Lower S&P close two sessions later
05/11/04… No lower close within next two days
03/12/04… Lower S&P close one session later
10/25/02… Lower S&P close one session later
07/05/02… Lower S&P close one session later
06/17/02… Lower S&P close two sessions later
01/31/02… Lower S&P close one session later
11/23/01… Lower S&P close two sessions later
09/24/01… No lower close within next two days
12/22/00… No lower close within next two days
11/24/00… Lower S&P close two sessions later

But beyond the potential for a short-term pullback, the absence of institutional sellers remains a consistent underlying theme. TICKscore settled at +13 Monday, Cumulative TICK +95,000 – that’s the eighteenth straight day of positive NYSE TICK action. As noted in today’s intraday update, the 20-day moving average of NYSE Down Volume fell below 40%, an unusually low level from a historical perspective (see long-term chart) and generally a good indication of limited downside potential over the next two months. Monday also marked the first time in over two and a half years that the 14-day RSI for the S&P500 closed above 75. While not an actionable signal on its own, this has been an indication of limited downside potential over the next month, particularly since 1995. The last thirty occurrences are below…

14-day RSI for S&P500 Closes Above 75
08/03/09… S&P500 ??? one month later
10/23/06… S&P500 +1.7% one month later
11/12/04… S&P500 +1.2% one month later
01/21/04… S&P500 -0.1% one month later
01/05/04… S&P500 +1.2% one month later
11/23/98… S&P500 +1.3% one month later
04/02/98… S&P500 +0.1% one month later
03/19/98… S&P500 +3.0% one month later
06/19/97… S&P500 +1.9% one month later
06/12/97… S&P500 +3.8% one month later
11/13/96… S&P500 -0.3% one month later
11/07/96… S&P500 +1.6% one month later
10/04/96… S&P500 +0.3% one month later
02/07/96… S&P500 +0.6% one month later
12/05/95… S&P500 +0.0% one month later
09/11/95… S&P500 +0.8% one month later
06/22/95… S&P500 +0.5% one month later
05/03/95… S&P500 +2.5% one month later
04/13/95… S&P500 +3.2% one month later
04/06/95… S&P500 +2.8% one month later
03/24/95… S&P500 +2.4% one month later
02/24/95… S&P500 +2.6% one month later
02/10/95… S&P500 +1.8% one month later
02/03/95… S&P500 +1.5% one month later
08/30/94… S&P500 -2.4% one month later
02/04/93… S&P500 -0.8% one month later
12/08/92… S&P500 -1.4% one month later
01/14/92… S&P500 -1.6% one month later
12/26/91… S&P500 +2.6% one month later
02/05/91… S&P500 +7.1% one month later
06/04/90… S&P500 -2.1% one month later

In addition to the two-month buy signal triggered by the NYSE down volume percentage, a second two-month buy signal was also triggered by the 7-day ADX for the S&P500. ADX is a technical indicator that gauges the strength of the underlying trend, and I’ve found the 7-day version more useful than the standard 14-day default. Note from this chart that the 7-day ADX for the S&P topped 60 on Monday, a very high level from a historical perspective and a sign of an unusually strong uptrend. Historically, reading this high have preceded further strength over the next two months…

7-day ADX for S&P500 Hits 60 in Uptrend
08/03/09… S&P500 ??? two months later
11/25/05… S&P500 -0.3% two months later
11/10/04… S&P500 +2.0% two months later
12/24/03… S&P500 +4.1% two months later
11/16/99… S&P500 +2.1% two months later
11/23/98… S&P500 +3.1% two months later
03/23/98… S&P500 +1.3% two months later
11/15/96… S&P500 +4.0% two months later
10/21/96… S&P500 +2.3% two months later
10/08/96… S&P500 +6.4% two months later
02/06/96… S&P500 +1.5% two months later
12/06/95… S&P500 +2.5% two months later
09/15/95… S&P500 +1.6% two months later
05/09/95… S&P500 +5.8% two months later
03/23/95… S&P500 +4.7% two months later
02/23/95… S&P500 +4.4% two months later
02/15/95… S&P500 +5.1% two months later
09/01/93… S&P500 +1.0% two months later
12/09/92… S&P500 +3.1% two months later
01/06/92… S&P500 -1.2% two months later
02/05/91… S&P500 +8.1% two months later
05/17/90… S&P500 +4.1% two months later
02/01/89… S&P500 -0.8% two months later
06/15/88… S&P500 -4.3% two months later
08/13/87… S&P500 -7.1% two months later
01/19/87… S&P500 +8.6% two months later
03/18/86… S&P500 +0.8% two months later
02/28/86… S&P500 +7.1% two months later
12/16/85… S&P500 +1.9% two months later
11/08/85… S&P500 +7.4% two months later
06/05/85… S&P500 +1.0% two months later

Note that in 25 out of 30 cases, or 83% of the time, the S&P was trading at a higher level forty trading days later, significantly above the 63% at-any-time odds for a higher SPX two months later in the same time frame.

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

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