Fade a Break of SPX 980?

Stock indices remained under pressure Wednesday, sending the S&P to its fourth consecutive lower close and creating a short-term oversold condition. The 2-day RSI for the S&P500 settled under 2.0, triggering what has been a reliable 1-2 buy signal. The table below lists each of the last thirty instances in which the S&P’s 2-day RSI closed under 2.0, along with the performance of the S&P500 by the time the RSI rose back over 2.0 and the number of days elapsed…

S&P500 2-day RSI Closes Below 2.0
09/02/09… S&P500 ??? when 2day RSI >2
02/20/09… S&P500 +0.4% when 2day RSI >2 (two sessions)
10/08/08… S&P500 +1.9% when 2day RSI >2 (three sessions)
01/22/08… S&P500 +2.1% when 2day RSI >2 (one session)
01/04/08… S&P500 +0.3% when 2day RSI >2 (one session)
02/27/07… S&P500 +0.6% when 2day RSI >2 (one session)
06/13/06… S&P500 +0.5% when 2day RSI >2 (one session)
01/04/05… S&P500 -0.0% when 2day RSI >2 (two sessions)
08/06/04… S&P500 +0.1% when 2day RSI >2 (one session)
03/11/04… S&P500 +1.3% when 2day RSI >2 (one session)
01/22/03… S&P500 +1.0% when 2day RSI >2 (one session)
09/19/02… S&P500 +0.3% when 2day RSI >2 (one session)
09/03/02… S&P500 +1.8% when 2day RSI >2 (one session)
07/22/02… S&P500 +3.0% when 2day RSI >2 (two sessions)
04/26/02… S&P500 +0.1% when 2day RSI >2 (two sessions)
09/20/01… S&P500 +2.0% when 2day RSI >2 (two sessions)
09/07/01… S&P500 +0.6% when 2day RSI >2 (one session)
06/15/01… S&P500 -0.1% when 2day RSI >2 (two sessions)
02/09/01… S&P500 +1.2% when 2day RSI >2 (one session)
11/10/00… S&P500 +1.3% when 2day RSI >2 (two sessions)
10/11/00… S&P500 +0.8% when 2day RSI >2 (two sessions)
09/18/00… S&P500 +1.1% when 2day RSI >2 (one session)
04/14/00… S&P500 +3.3% when 2day RSI >2 (one session)
10/15/99… S&P500 +0.5% when 2day RSI >2 (one session)
08/04/99… S&P500 +0.6% when 2day RSI >2 (one session)
05/25/99… S&P500 +1.6% when 2day RSI >2 (one session)
04/19/99… S&P500 +1.3% when 2day RSI >2 (one session)
08/31/98… S&P500 +3.8% when 2day RSI >2 (one session)
07/23/98… S&P500 +0.1% when 2day RSI >2 (one session)
01/09/98… S&P500 +1.2% when 2day RSI >2 (one session)
10/27/97… S&P500 +5.1% when 2day RSI >2 (one session)

Note that in 27 out of 30 cases, or 90% of the time, the S&P posted a subsequently higher close one or two sessions later, suggesting an SPX close back over 994 by Thursday.

Given the wide-range study discussed yesterday, it appears we’ll see a bit more downside coincident with Friday’s jobs report or on a post-holiday selloff. Lots of traders seem to be focused on the mid-August low around SPX 980, but I’d be wary of a bear trap should that level get taken out. A number of longer-term bullish setups remain in effect until the last couple weeks of September.

I’d also note that in general, it’s difficult to turn too bearish on stocks with the S&P up 10% year-to-date. While it’s always a good idea to know where the S&P is trading on a YTD basis, it’s particularly important at the end of September. History demonstrates that if the stock market, as represented by the S&P500, is trading in positive territory YTD at that time, it’s likely that the upward trend will persist into the end of the year. I went back to 1965 to find the last thirty years in which the S&P500 was sporting a year-to-date gain at the end of September. In 24 out of 30 years, or 80% of the time, the S&P was trading higher (than September’s close) on the last trading day of December. In only two cases did the S&P drop 5% or more from the end of September through the end of the year, while it gained 5%+ twelve times…

S&P500 is YTD Positive at the end of September
09/28/07… S&P Up YTD… -3.8% at year-end
09/29/06… S&P Up YTD… +6.2% at year-end
09/30/05… S&P Up YTD… +1.6% at year-end
09/30/04… S&P Up YTD… +8.9% at year-end
09/30/03… S&P Up YTD… +11.6% at year-end
09/30/99… S&P Up YTD… +14.5% at year-end
09/30/98… S&P Up YTD… +20.9% at year-end
09/30/97… S&P Up YTD… +2.4% at year-end
09/30/96… S&P Up YTD… +7.8% at year-end
09/29/95… S&P Up YTD… +5.4% at year-end
09/30/93… S&P Up YTD… +1.6% at year-end
09/30/92… S&P Up YTD… +4.3% at year-end
09/30/91… S&P Up YTD… +7.5% at year-end
09/29/89… S&P Up YTD… +1.2% at year-end
09/30/88… S&P Up YTD… +2.1% at year-end
09/30/87… S&P Up YTD… -23.2% at year-end (*)
09/30/86… S&P Up YTD… +4.7% at year-end
09/30/85… S&P Up YTD… +16.0% at year-end
09/28/84… S&P Up YTD… +0.7% at year-end
09/30/83… S&P Up YTD… -0.7% at year-end
09/30/80… S&P Up YTD… +8.2% at year-end
09/27/79… S&P Up YTD… -1.3% at year-end
09/29/78… S&P Up YTD… -6.3% at year-end (*)
09/30/76… S&P Up YTD… +2.1% at year-end
09/30/75… S&P Up YTD… +7.5% at year-end
09/29/72… S&P Up YTD… +6.8% at year-end
09/30/71… S&P Up YTD… +3.8% at year-end
09/30/68… S&P Up YTD… +1.2% at year-end
09/29/67… S&P Up YTD… -0.2% at year-end
09/30/65… S&P Up YTD… +2.7% at year-end

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

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