Clues from the Market Vane Survey of Commodity Trading Advisors

S&P futures opened lower and closed lower Friday in a lightly traded session. NYSE consolidated volume hit a two-week low as only 4.7 billion shares traded hands. NASDAQ volume hit a one-week low. NYSE TICK action was modestly positive, with TICKscore closing at +7 and Cumulative TICK +20,500. It would have  bullish implications if the Cumulative TICKscore line pushes into new highs, as it’s done repeatedly since the March bottom. We’d need to see a reading above +10 on Monday for this to occur.

One interesting point from a short-term perspective is that despite Friday’s selloff, with a lower high, low and close for the S&P, the number of stocks  closing over their upper bollinger bands increased while the number of stocks that closed under their lower band decreased (see chart). That’s a subtle hint that downside momentum may be waning. I went back and noted the last thirty instances in which this same pattern occurred.  In 22 out of 30 cases, or 73% of the time, the S&P closed at a higher level two sessions later, significantly above the 52% random odds for a higher S&P close two sessions later in the same time frame…

Lower High, Low & Close for S&P500,
#Stocks >Upper Band Increase, # <Lower Band Decrease
09/25/09… S&P500 ??? two sessions later
09/02/09… S&P500 +2.2% two sessions later
07/10/09… S&P500 +3.0% two sessions later
07/08/09… S&P500 -0.1% two sessions later
06/17/09… S&P500 +1.2% two sessions later
06/16/09… S&P500 +0.7% two sessions later
04/28/09… S&P500 +2.1% two sessions later
02/27/09… S&P500 -5.3% two sessions later
02/02/09… S&P500 +0.8% two sessions later
10/10/08… S&P500 +11.0% two sessions later
09/23/08… S&P500 +1.8% two sessions later
09/03/08… S&P500 -2.6% two sessions later
08/13/08… S&P500 +1.0% two sessions later
07/15/08… S&P500 +3.7% two sessions later
06/27/08… S&P500 +0.5% two sessions later
06/03/08… S&P500 +1.9% two sessions later
04/14/08… S&P500 +2.7% two sessions later
02/06/08… S&P500 +0.4% two sessions later
01/16/08… S&P500 -3.5% two sessions later
12/31/07… S&P500 -1.4% two sessions later
11/08/07… S&P500 -2.4% two sessions later
06/26/07… S&P500 +0.9% two sessions later
01/26/07… S&P500 +0.5% two sessions later
11/02/06… S&P500 +0.9% two sessions later
09/07/06… S&P500 +0.4% two sessions later
06/06/06… S&P500 -0.5% two sessions later
05/18/06… S&P500 +0.0% two sessions later
03/31/06… S&P500 +0.9% two sessions later
02/03/06… S&P500 -0.7% two sessions later
12/20/05… S&P500 +0.7% two sessions later
12/08/05… S&P500 +0.4% two sessions later

Interesting to note that the Market Vane survey of commodity trading advisors ticked into positive territory for the first time in over a year, with 51% of respondents falling into the bullish camp. Market Vane doesn’t get nearly the press of other major sentiment surveys like Investors Intelligence and AAII, but then a lot of significant indicators receive very little press. For those unfamiliar with the Market Vane Bullish Consensus, it polls commodity trading advisors for their take on the market. Over the years, CTAs have proven to be a well-informed bunch. When they’re bullish on the market, it’s typically paid to take notice. One way to gauge whether they’re bullish (other than using above/below the 50% threshold) is to compare this week’s reading to all readings over the past year. If the survey stands at a new 52-week high, as is the case currently, we can infer CTAs are expecting higher prices. Historically, this has proven to be a reliable intermediate-term buy signal for the S&P looking out a couple of weeks. The last thirty instances in which the Bullish Consensus hit a 52-week high are listed in the table below…

Market Vane Bullish Consensus Hits 52-week High
09/25/09… S&P500 ??? two weeks later
09/18/09… S&P500 -2.2% (open – ends 10/2)
08/28/09… S&P500 +1.3% two weeks later
08/07/09… S&P500 +1.6% two weeks later
04/20/07… S&P500 +1.4% two weeks later
01/13/06… S&P500 -0.3% two weeks later
02/20/04… S&P500 +1.1% two weeks later
01/30/04… S&P500 +1.3% two weeks later
01/23/04… S&P500 +0.1% two weeks later
01/09/04… S&P500 +1.8% two weeks later
12/26/03… S&P500 +2.4% two weeks later
12/19/03… S&P500 +1.8% two weeks later
12/05/03… S&P500 +2.6% two weeks later
10/17/03… S&P500 +1.1% two weeks later
09/05/03… S&P500 +1.5% two weeks later
06/20/03… S&P500 -1.0% two weeks later
06/13/03… S&P500 -1.3% two weeks later
06/06/03… S&P500 +0.8% two weeks later
05/30/03… S&P500 +2.6% two weeks later
05/16/03… S&P500 +2.0% two weeks later
05/09/03… S&P500 -0.0% two weeks later
05/02/03… S&P500 +1.5% two weeks later
04/25/03… S&P500 +3.9% two weeks later
01/04/02… S&P500 -3.8% two weeks later (*)
12/21/01… S&P500 +2.4% two weeks later
11/16/01… S&P500 +0.1% two weeks later
06/20/97… S&P500 +2.0% two weeks later
06/13/97… S&P500 -0.7% two weeks later
05/30/97… S&P500 +5.3% two weeks later
01/05/96… S&P500 -0.8% two weeks later
11/24/95… S&P500 +2.9% two weeks later
06/23/95… S&P500 +1.2% two weeks later

Note that in 23 out of 30 cases, or 77% of the time, the S&P was trading at a higher level ten trading days later. That’s significantly above the 56% at-any-time odds for a higher S&P two weeks later in the same period of time. Also noteworthy was that only one case led to an S&P down 1.5% or more two weeks later. Not only was this signal triggered as of Friday’s close, it was also triggered the previous week (ending 9/18). Since then, the S&P is down 2.2%. If the market follows historical tendencies, we should see price rebound over the coming week.

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

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