SPX R-Squared Back Over 90%

In a warning not to get too lulled by recent action, the semiconductor index (SOX) posted a second consecutive NR10 session Wednesday, a pattern that has typically led to outsized moves over the short-term. SOX is much more volatile than most other market averages, so it’s particularly noteworthy when this index posts back-to-back narrow range days. It’s a sign of a coiled market that could spring one way or the other on short notice.

TICKscore closed at -2, keeping the cumulative TICKscore line below its early November high. Breadth also finished modestly negative, keeping the cumulative breadth line below recent highs. That’s cause for concern, but price action continues to indicate a period of consolidation will be resolved to the upside. Note that the 14-day R-Squared for the S&P500 closed above the 90% level Wednesday, a sign of an unusually strong uptrend. This is the fifth separate occurrence of this setup since the beginning of the year, something we haven’t seen since the 1995-1996 time frame. Historically, an R-Squared reading over 90% along with a positive linear regression slope has been a good indication that the S&P is likely to remain on firm footing over the intermediate-term. The last thirty occurrences are noted in the table below, along with the S&P’s performance over the next 2-3 weeks…

SPX R-Squared Crosses 90%, Linear Regression Slope Positive
11/18/09… S&P500 ??? two or three weeks later
10/20/09… S&P500 +0.2% three weeks later
09/21/09… S&P500 +1.1% three weeks later
07/24/09… S&P500 +3.2% two weeks later
03/24/09… S&P500 +1.2% two weeks later
04/25/07… S&P500 +1.2% two weeks later
11/23/05… S&P500 +0.4% three weeks later
11/09/04… S&P500 +1.1% two weeks later
12/29/03… S&P500 +1.1% two weeks later
06/06/03… S&P500 +0.8% two weeks later
03/08/02… S&P500 -1.5% three weeks later (*)
04/23/01… S&P500 +3.2% two weeks later
01/25/01… S&P500 -2.3% three weeks later (*)
12/31/99… S&P500 -4.6% three weeks later (*)
11/18/99… S&P500 +0.6% two weeks later
07/02/98… S&P500 +3.5% two weeks later
03/20/98… S&P500 +2.1% two weeks later
02/27/98… S&P500 +1.8% two weeks later
02/10/98… S&P500 +2.3% two weeks later
06/19/97… S&P500 +2.1% two weeks later
01/20/97… S&P500 +1.3% two weeks later
11/13/96… S&P500 +3.3% two weeks later
09/19/96… S&P500 +1.4% two weeks later
05/21/96… S&P500 +0.8% two weeks later
04/29/96… S&P500 +1.1% two weeks later
01/29/96… S&P500 +6.0% two weeks later
12/08/95… S&P500 +0.5% three weeks later
09/12/95… S&P500 +0.9% two weeks later
07/14/95… S&P500 +0.5% two weeks later
05/04/95… S&P500 +1.6% three weeks later
08/27/93… S&P500 +0.3% two weeks later

In 27 out of 30 cases, or 90% of the time, the S&P closed at a higher level two or three weeks later, significantly above the 69% random odds of a higher SPX ten or fifteen trading days later in the same time frame.

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

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