When Oversold Conditions Fail to Produce a Bounce

Relentless selling pressure. TICKscore down to -43, Cumulative TICK -81,000. Breadth 6:1 negative. Not a positive sign from an intermediate-term perspective that the market has been unable to bounce following extreme oversold readings. If the SPX closes anywhere south of 1060 on Thursday, it will mark only the eleventh instance in which the S&P has dropped more than 0.5% in the three days following a -200 McClellan Oscillator.  While the sample size is small, a failure to rally out of oversold territory has consistently translated into a difficult time for stocks over the next week…

McClellan <-200 First Time in a Month, S&P -0.5% Three Days Later
02/23/09… S&P500 -5.7% one week later
10/09/08… S&P500 +4.0% one week later
06/26/08… S&P500 -1.6% one week later
11/12/07… S&P500 -0.4% one week later
07/27/07… S&P500 -1.8% one week later
05/22/06… S&P500 -0.2% one week later
09/02/98… S&P500 -1.0% one week later
07/31/98… S&P500 -2.8% one week later
10/21/87… S&P500 -9.7% one week later
10/25/78… S&P500 -0.5% one week later

Wednesday is setting up to be the third consecutive session that S&P futures have closed below the previous day’s low, a pattern that has typically led to a higher S&P close the following session.  The last thirty separate occurrences of this pattern are listed in the table below (’separate’ meaning the pattern wasn’t in effect the session before). In 23 out of the last 30 occurrences, or 77% of the time, the S&Ps closed higher the next day, significantly above the 53% at-any-time odds for a higher S&P one session later…

S&P Futures Close < Previous Day’s Low x3
10/02/09… S&P futures +1.4% next day
09/02/09… S&P futures +0.8% next day
06/17/09… S&P futures +0.9% next day
03/03/09… S&P futures +2.7% next day
10/06/08… S&P futures -4.5% next day
03/28/08… S&P futures +0.4% next day
03/10/08… S&P futures +3.8% next day
01/17/08… S&P futures -1.1% next day
10/12/05… S&P futures -0.0% next day
10/06/05… S&P futures +0.3% next day
08/08/05… S&P futures +0.6% next day
01/24/05… S&P futures +0.3% next day
01/05/05… S&P futures +0.4% next day
10/14/04… S&P futures +0.5% next day
07/16/04… S&P futures -0.4% next day
05/10/04… S&P futures +0.8% next day
04/30/04… S&P futures +0.9% next day
03/10/04… S&P futures -1.3% next day
02/20/04… S&P futures -0.3% next day
11/18/03… S&P futures +0.8% next day
09/26/03… S&P futures +1.0% next day
01/22/03… S&P futures +0.6% next day
11/11/02… S&P futures +0.8% next day
10/07/02… S&P futures +1.6% next day
09/19/02… S&P futures +0.1% next day
08/05/02… S&P futures +3.2% next day
07/22/02… S&P futures -2.8% next day
06/21/02… S&P futures +0.5% next day
05/30/02… S&P futures +0.2% next day
05/07/02… S&P futures +3.7% next day

Categories : Archived Intraday Commentary, Intraday Commentary

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