S&P Futures Going for Eight in a Row, Potential for a Black Candlestick

S&P futures are in the process of posting an eighth consecutive day of gains, although we’re still trading below the open. That leaves open the possibility of a higher close but a black candlestick, a generally negative indication for the following session when it comes after a series of rally days. Looking back at times when S&P futures formed a similar pattern of three rally days (higher closes, white candles) followed by a fourth higher close that coincided with a black candle, we can see that the settlement below the open typically ushers in a very short-term change of trend. Since 1995 we’ve seen this specific pattern a total of twenty times, only one of which led to a meaningful gain the following session…

Higher Close, Black Candle After Three Rally Days
10/12/09… S&P futures -0.3% next session
07/21/09… S&P futures -0.4% next session
01/06/09… S&P futures -2.7% next session
05/30/08… S&P futures -1.1% next session
11/30/07… S&P futures -0.6% next session
04/09/07… S&P futures +0.1% next session
11/16/06… S&P futures -0.0% next session
09/15/06… S&P futures +0.2% next session
04/21/06… S&P futures -0.2% next session
03/17/06… S&P futures -0.2% next session
07/14/05… S&P futures -0.0% next session
11/01/04… S&P futures -0.0% next session
05/28/03… S&P futures -0.3% next session
10/20/98… S&P futures -0.1% next session
01/30/98… S&P futures +1.6% next session (*)
06/16/97… S&P futures -0.2% next session
12/20/96… S&P futures -0.4% next session
05/15/96… S&P futures -0.1% next session
02/07/95… S&P futures -0.1% next session
01/27/95… S&P futures -0.3% next session

I’m not particularly negative on the market here despite the weak TICK action and short-term sells, mainly because the market has managed to shrug off similarly weak action over the past week and a half. After Monday’s 2%+ gain, I noted that similar action after a series of up days has often led to runaway conditions, with pullbacks shorter and shallower than expected. So far that’s held true this time around. While we could be looking at another day of consolidation on Thursday, I’d expect downside to be limited (note from the table above that of the 17 times the S&P closed lower, all but three losses were less than 0.5%).

From an intermediate-term perspective, it’s noteworthy that the NDX is going for an eighth straight day of gains. Historically, this many consecutive up days is an indication of an unusually persistent uptrend that normally leads to further gains over the next week. Below I’ve listed every instance since 1986 in which the Nasdaq100 index (NDX) closed higher eight sessions in a row, followed by the performance of the NDX over the next five trading days. Despite the overbought conditions, note that seventeen out of twenty signals led to a higher NDX close one week later…

Nasdaq100 Up Eight Consecutive Sessions
10/14/09… Nasdaq -0.0% one week later
07/17/09… Nasdaq +4.1% one week later
05/24/05… Nasdaq +1.2% one week later
06/01/04… Nasdaq +1.9% one week later
12/27/99… Nasdaq +5.3% one week later
11/08/96… Nasdaq +0.1% one week later
09/20/96… Nasdaq +0.2% one week later
07/10/95… Nasdaq +4.1% one week later
08/17/94… Nasdaq +0.4% one week later
01/02/92… Nasdaq +5.1% one week later
05/31/91… Nasdaq -3.0% one week later
02/01/91… Nasdaq +4.3% one week later
12/03/90… Nasdaq +2.5% one week later
05/09/90… Nasdaq +4.5% one week later
10/09/89… Nasdaq -5.0% one week later
09/14/88… Nasdaq +0.5% one week later
01/13/87… Nasdaq +4.3% one week later
05/29/86… Nasdaq +0.5% one week later
04/17/86… Nasdaq +0.5% one week later
02/11/86… Nasdaq +1.0% one week later

Categories : Archived Intraday Commentary, Intraday Commentary

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