Short-term Sell Setups

Stocks closed with slim gains Tuesday on declining volume and light institutional participation. TICKscore settled at +7, Cumulative TICK +52,000. The S&P500 closed at a fresh six-month high, suggesting a flat-to-down market on Wednesday (see Sunday’s column for details.)

New 52-week highs contracted while new 52-week lows expanded on both the NYSE and NASDAQ, a fairly unusual development given that the NDX posted a higher high, higher low and higher close. This hints at underlying weakness not evident on the surface, and usually leads to a lower Nasdaq close within the next few sessions…

New Highs Contract, New Lows Expand on NDX Rally Day
08/25/09… ???
04/03/09… Lower NDX close one session later
03/17/09… Lower NDX close three sessions later
11/04/08… Lower NDX close one session later
06/04/08… Lower NDX close two sessions later
04/21/08… Lower NDX close one session later
04/10/08… Lower NDX close one session later
10/18/07… Lower NDX close one session later
09/24/07… No lower close within three sessions
04/17/07… Lower NDX close one session later
02/21/07… Lower NDX close three sessions later
11/08/06… Lower NDX close one session later
09/14/06… Lower NDX close three sessions later
05/08/06… Lower NDX close one session later
07/15/05… Lower NDX close one session later
05/24/05… Lower NDX close one session later
05/06/05… Lower NDX close two sessions later
02/08/05… Lower NDX close one session later
09/04/03… Lower NDX close one session later
07/30/02… Lower NDX close one session later
03/08/02… Lower NDX close one session later
06/07/01… Lower NDX close one session later
08/15/00… Lower NDX close one session later
07/17/00… Lower NDX close one session later
11/10/99… No lower close within three sessions
08/24/99… Lower NDX close three sessions later
01/07/99… Lower NDX close three sessions later
11/10/98… Lower NDX close two sessions later
07/13/98… Lower NDX close one session later
07/07/98… No lower close within three sessions
06/09/98… Lower NDX close one session later

Note that out of the past 30 occurrences, 27 led to a lower NDX close within the next three sessions. That 90% win rate is significantly above the 67% at-any-time odds for a lower NDX close (below the setup day) within three days.

Along similar lines, when new 52-week highs drop on a day when the S&P and Nasdaq both hit 20-day highs and close higher, it signals fewer stocks driving the market rally, a pattern that usually leads to a lower S&P close within the next couple of days. The table below lists the last thirty instances in which the SPX and NDX both hit new 20-day highs and closed higher despite a contraction in new 52-week highs on both the NYSE and NASDAQ. Note the definitive tendency for the S&P to turn around and post a lower close (below the setup day). In 25 out of 30 occurrences, or 83% of the time, the S&P500 closed below the setup day’s close within the next two sessions, significantly above the 62% at-any-time odds for a lower S&P close within two days…

NDX & SPX Hit New 20day Highs, Close Higher, New 52-week Highs Drop
08/25/09… ???
08/04/09… Lower S&P close one session later
06/02/09… Lower S&P close one session later
05/06/09… Lower S&P close one session later
01/02/09… Lower S&P close one session later
05/15/08… No lower close within two sessions
04/17/07… Lower S&P close two sessions later
02/15/07… Lower S&P close one session later
11/16/06… No lower close within two sessions
09/01/06… Lower S&P close two sessions later
07/12/05… No lower close within two sessions
05/19/05… Lower S&P close one session later
12/03/04… Lower S&P close one session later
09/02/04… Lower S&P close one session later
06/08/04… Lower S&P close one session later
01/07/04… Lower S&P close two sessions later
05/06/03… Lower S&P close one session later
08/22/02… Lower S&P close one session later
03/08/02… No lower close within two sessions
04/19/01… Lower S&P close one session later
01/18/01… Lower S&P close one session later
09/01/00… Lower S&P close one session later
07/17/00… Lower S&P close one session later
07/14/00… Lower S&P close two sessions later
11/18/99… Lower S&P close one session later
11/12/99… Lower S&P close one session later
08/24/99… Lower S&P close two sessions later
11/05/98… Lower S&P close two sessions later
07/13/98… No lower close within two sessions
07/08/98… Lower S&P close one session later
04/03/98… Lower S&P close one session later

Finally, I’d note that S&P futures posted a fifth consecutive higher high on Tuesday and closed higher, a price pattern that often precedes a short-term top. The last thirty occurrences are listed below. Note that in 22 cases, or 73% of the time, the S&Ps posted a subsequently lower close 3-4 sessions later, significantly greater than the 54% at-any-time odds for a lower S&P 3-4 days later in the same time frame…

Five Higher Highs and S&P Futures Close Higher
08/25/09… S&P futures ???
07/24/09… S&P futures -0.3% three sessions later
07/01/09… S&P futures -4.3% three sessions later
05/08/09… S&P futures -4.3% three sessions later
03/17/09… S&P futures -1.4% three sessions later
01/06/09… S&P futures -4.8% three sessions later
05/16/08… S&P futures -2.3% three sessions later
07/06/07… S&P futures -0.7% three sessions later
07/03/07… S&P futures -1.1% four sessions later
03/21/07… S&P futures -0.3% four sessions later
10/26/06… S&P futures -0.7% three sessions later
08/18/06… S&P futures -0.7% three sessions later
07/28/06… S&P futures -0.0% three sessions later
03/14/06… S&P futures +0.5% four sessions later
01/09/06… S&P futures -0.1% three sessions later
11/23/05… S&P futures -0.7% three sessions later
06/16/05… S&P futures +0.4% three sessions later
05/23/05… S&P futures +0.3% four sessions later
12/15/04… S&P futures -0.7% three sessions later
11/15/04… S&P futures -0.1% three sessions later
11/03/04… S&P futures +1.7% four sessions later
11/01/04… S&P futures +3.3% four sessions later
10/04/04… S&P futures -0.4%  three sessions later
08/02/04… S&P futures -2.4% three sessions later
05/27/04… S&P futures -0.7% four sessions later
04/01/04… S&P futures +0.8% four sessions later
01/21/04… S&P futures -0.3% four sessions later
01/07/04… S&P futures -0.4% four sessions later
12/23/03… S&P futures +1.3% four sessions later
12/01/03… S&P futures -0.7% four sessions later
06/02/03… S&P futures +2.0% four sessions later

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

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